CHEAP DIESEL GETS ANOTHER REPRIEVE UNTIL FEB 29

Bangkok Post - 25 January 2012

The excise tax cut for diesel will be extended until Feb 29 as oil nears US$110 a barrel on tension in the Middle East.

Deputy government spokesman Anusorn Iamsa-ard said the cabinet yesterday approved the Finance Ministry's proposal to extend the cut, which will cost the government about 9 billion baht a month in lost revenue.

The excise tax levied on diesel was cut by Abhisit Vejjajiva's administration last April, from 5.31 baht a litre to half a satang, and the municipal tax of 53.1 satang was waived to honour a policy of keeping the price below 30 baht a litre.

The tax cut was originally scheduled to expire at the end of 2011, but the new Pheu Thai government extended it to the end of this month.

"The cabinet agrees on the proposal to help alleviate the cost of living of people and their financial hardship after the devastating floods late last year," Mr Anusorn said.

More importantly, world oil prices have resumed their rise on the conflict between Iran and Western countries.

Tanker traffic out of the Persian Gulf has concerned oil traders for weeks, with Iran saying it could close the strategic Strait of Hormuz, through which a fifth of the world's crude is transported, in response to sanctions by the West.

On Monday, the EU said its refineries would stop buying Iranian crude after July and froze assets of Iran's central bank.

The sanctions are meant to force Iran to talk with the West about its nuclear programme. Iran says the programme is peaceful, but western nations suspect Iran of trying to build nuclear weapons.

Global oil prices may fluctuate in the short term, according to local oil players.

"This is psychological movement," said Surong Bulakul, the chief executive of Thaioil Plc, Thailand's largest oil refiner. "But this political tension between Iran and the EU is unlikely to develop into war or a severe fight."

Thaioil estimates an average Dubai oil price of $105-110 a barrel, but the price could edge up to $115 if the tension heightens.

Nonetheless, Thaioil has also attributed the oil price fluctuations over the past several weeks to growing concerns about the European debt crisis.

Dubai crude oil closed yesterday at $107.98 a barrel, up four cents.