On December 16, 2014, the Thai cabinet resolved to approve the National Energy Policy Council (NEPC)'s request to increase the diesel fuel excise tax to THB3.25/liter, from THB0.75/liter previously. However, along with the reduction in contribution to the Oil Fund to THB1.75/liter, from THB4.50/liter before, pump prices for diesel fuel will remain unchanged from the current THB26.89/liter.
Given recent oil price drops in the global market, KResearch believes that this turn of events offers a window of opportunity for Thailand to restructure oil prices without hurting business or household costs. Meanwhile, the government's imminent fuel price restructuring plan shouldn't cause any changes, or very minimal if any, to current prices for other types of motor fuel.
Over the coming months, or within 1H15, oil prices are expected to remain weak. Under such circumstances, combined with an unchanged levy structure and contributions to the Oil Fund, KResearch has assessed that the size of the Fund will increase to THB40 billion within 1H15, which would then be sufficient. Considering the sum that has to be set aside for E85 subsidies per the renewable energy support program, the government may have to think about whether it is necessary to raise the levy back to THB5.31/liter or not. If not needed, retail prices can be lowered.
Moreover, considering current tax structures and Oil Fund contributions, if the government intends to keep retail diesel fuel prices at THB30/liter or lower, we do not suppose it would be a must for the Oil Fund to subsidize diesel fuel if global crude oil prices remain below USD70/barrel.
Until the Oil Fund is stabilized, the government may ponder cutting domestic retail gasoline prices. This means that only by then would the business and household sectors benefit from cheaper oil in the global market. Finally, KResearch believes that lower domestic fuel prices will play a crucial part in boosting domestic spending, which would help our economic growth in 2015.