Oil fund faces fresh strain as global crude prices rise

Thailand’s policy of cutting retail fuel prices is coming under growing pressure as renewed confrontation between the United States and Iran drives global oil prices higher and raises fresh concerns over supplies from the Middle East.

The Oil Fuel Fund, which is being used to cushion domestic consumers from energy costs, was already 58.43 billion baht in deficit as of July 12. Its position could deteriorate further if crude prices continue rising while the government keeps domestic pump prices below their full market cost.

An Energy Ministry source told Krungthep Turakij that global energy markets had tightened again as the US-Iran conflict intensified, fuelling concerns that the fighting could disrupt oil shipments through the Strait of Hormuz.

The waterway is one of the world’s most important energy corridors, carrying roughly one-fifth of global oil supplies before the latest conflict disrupted normal shipping patterns. Vessel traffic through the strait fell sharply again on July 16 amid renewed attacks and military restrictions.

The renewed rise in international prices has coincided with Thailand’s decision to cut domestic retail fuel prices as part of the government’s cost-of-living measures.

That has immediately increased the burden on the Oil Fuel Fund, even though it had not recovered from earlier price-support measures.

Crude prices rebound on Middle East risks

West Texas Intermediate crude for August delivery rose 0.9% to US$79.65 a barrel during Asian trading on July 17 and was heading for a weekly gain of more than 11%, its largest advance in several months.

September Brent crude settled at US$84.23 a barrel on July 16, despite falling 0.9% during that session.

The rebound brought crude prices back towards their highest levels in about a month, after prices had fallen by more than 30% during the second quarter.

International oil prices had declined sharply in June as tanker traffic through the Strait of Hormuz began to recover, but renewed hostilities on July 7 and 8 clouded that outlook and pushed benchmark prices higher again.

The International Energy Agency said in its July report that global oil supply recovered by 4.1 million barrels a day in June as Gulf flows partially resumed. However, production remained about 9.4 million barrels a day below pre-war levels, leaving the market vulnerable to further disruption.

Hormuz disruption threatens global supplies

Energy markets are closely watching whether escalating military activity will again restrict shipping through the Strait of Hormuz.

Only three commodity vessels passed through the waterway on July 16, the lowest daily total since May, while no very large crude carriers or liquefied natural gas tankers completed a transit for a second consecutive day, according to shipping data cited by Reuters.

Concern has spread beyond crude oil to refined products such as diesel and petrol.

US refinery margins reached fresh record highs as low inventories and worsening Middle East tensions raised the risk of fuel shortages in the world’s largest petroleum-consuming market.

The US Energy Information Administration said disruptions to Middle Eastern crude and petroleum-product flows during the second quarter had driven international buyers towards alternative suppliers, boosting US refinery production, exports and margins.

Diesel and petrol supplies tighten

The global market for refined fuels has remained tight even during periods when crude prices eased.

Russian fuel exports have declined following Ukrainian attacks on several refineries, while Moscow has imposed restrictions on diesel exports.

Middle Eastern export refineries have also been slow to restart, Russian processing has been curtailed and Asian refineries have continued to operate at reduced rates.

These constraints pushed refined-product cracks and refinery margins to four-year highs in early July, according to the International Energy Agency. Petrol and diesel markets remained particularly tight.

The imbalance means consumers could continue facing elevated fuel costs even if crude oil prices stabilise, as shortages of refining capacity and finished petroleum products cannot be resolved as quickly as crude-supply disruptions.

Thailand cuts pump prices despite fund deficit

Thailand moved in the opposite direction by lowering domestic retail fuel prices under a government policy intended to ease household expenses and business costs.

According to Oil Fuel Fund Office figures cited by the Energy Ministry source, the fund stood 57.36 billion baht in deficit on July 5.

This comprised a deficit of 18.09 billion baht in its oil account and 39.27 billion baht in its liquefied petroleum gas account.

The figures showed that the fund remained financially vulnerable even after global crude prices had declined from their second-quarter highs.

Its position had been positive by 2.39 billion baht on February 22, shortly before conflict involving the United States, Israel and Iran escalated on February 28.

At that point, the oil account had a surplus of 40.37 billion baht, while the LPG account was 37.99 billion baht in deficit.

Diesel price support reverses recovery

When global oil prices surged after the conflict began, the government initially capped diesel at 30 baht per litre for 15 days.

The cost of supporting the price rapidly eroded the fund’s earlier surplus.

By March 8, the fund had swung to a deficit of 786 million baht. Its losses subsequently continued to accumulate, eventually exceeding 50 billion baht.

The deterioration illustrates how quickly the fund can come under pressure when international prices rise while domestic retail prices are held down.

Anutin orders immediate fuel-price reductions

Prime Minister Anutin Charnvirakul instructed Energy Minister Akanat Promphan on July 7 to find ways to lower retail fuel prices.

Anutin said the public was aware that global oil prices had fallen and stabilised, meaning domestic retail prices should also reflect the reduction in costs.

“The government wants to prioritise reducing people’s cost-of-living burden while lowering business operators’ expenses as much as possible,” he said.

Although no firm deadline was imposed, the Energy Ministry was instructed to act through the Oil Fuel Fund Executive Committee and the Energy Policy Administration Committee to bring prices down as quickly as possible.

Diesel and petrol prices cut nationwide

Following the Prime Minister’s instruction, Akanat convened urgent meetings of the two energy committees.

They approved a reduction of 2.56 baht per litre for all diesel products and 2.51 baht per litre for all petrol products, effective from July 8.

However, the Oil Fuel Fund’s financial position weakened further within days of the reductions.

Its deficit increased from 57.36 billion baht on July 5 to 58.43 billion baht on July 12.

The difference was 1.07 billion baht in one week, reflecting the additional cost of using the fund to support lower retail prices.

Deficit could again exceed 100 billion baht

The Energy Ministry source warned that the fund’s financial burden would inevitably increase if global crude prices continued to rise because of geopolitical risks.

The danger would become more severe if the Middle East conflict persisted or substantially disrupted oil shipments through the Strait of Hormuz.

Should the government continue freezing or reducing retail prices to ease the cost of living, the fund would have to cover an increasingly large gap between market costs and domestic selling prices.

Under such conditions, its deficit could eventually return to more than 100 billion baht, a level last recorded in 2024, particularly if global oil prices continue rising during the second half of the year.

Source: Bangkokbiznews