Rising oil prices begin to take toll

[PHNOM PENH POST]

FOR an economy expected to grow by about 6.5 percent this year, news last week that traffic through Sihanoukville Port – by far the country’s largest – grew by an annualised 14.4 percent in the first quarter was to be expected. However, a 3.1-percent fall in imports of oil products served as a reminder that Cambodia’s robust recovery could be held back by surging fuel costs amid crude prices that again neared recent highs at the end of last week.

Ernst & Young in its quarterly oil and gas review warned on Thursday that rising fuel prices driven by demand as a result of the global economic recovery and unrest in the Middle East could hurt the world’s economy.

“Higher prices are expected to impact the global economic recovery and restrain oil demand growth,” it said.

In Cambodia, these effects are already being felt. Premium fuel prices climbed more than 14 percent between March 31, 2010 and the end of the first quarter this year in riel terms, according to Trade Promotion Department data. On the back of a strong local currency in recent weeks, this translated to an even bigger jump for those paying in United States dollars at about 17 percent. Diesel, which fuels lorries and therefore much of the country’s land freight, soared 25 percent in riel terms and about 30 percent in dollars over the same period.

These huge price rises have been the driving force behind the drop in oil imports at the start of this year, said Bin May Malia, marketing division manager at fuel retailer PTT of Thailand. Sales have “dropped a little bit because of the high prices in quarter one”, he told The Post yesterday.

At PTT, retail fuel sales fell for both diesel and gasoline, he added, although a rise in sales of oil products to the energy and aviation sectors meant company sales were up overall during the first quarter of the year.

The latest figures from Sihanoukville Port – through which PTT imports all its oil products – suggests other fuel retailers in the Kingdom saw a downturn in sales during the first three months.

How will the decreasing appetite for fuel translate within Cambodia’s economy?

At the moment this remains mostly unclear. But disposable incomes for many will decrease as fuel costs take up a larger percentage of household income, while consumers will shy away from some purchases. When consumers buy less fuel we can normally expect generator usage to drop, domestic travellers to take fewer trips, and higher earners to think twice before upgrading vehicles or indeed purchasing a car or motorbike altogether, among other knock-on effects.

Falling demand for fuel can therefore only have a negative impact on Cambodia’s economy over the coming months. In terms of the country’s energy problems, the situation serves as yet another reminder that fuel remains among the key challenges for the Kingdom’s economy. And it’s a problem that is only getting worse.