Local oil prices plummet due to economic downturn.

A PTT filling station on Vivavadi Rangsit road now displays different types of fuel after diesel prices dropped to 32 baht per liter on Monday. The decline in prices is attributed to falling global oil prices and economists fear a global recession. Experts are examining the relationship between oil prices and the economic downturn to determine if this trend will continue into 2023.

The Petroleum Fuel Fund Office (Ofo) blames the decline in oil prices on the contraction of the economy, especially as central banks raise interest rates. Wisak Watanasap, director of Ofo, expects global oil prices to fall slightly if interest rates continue to rise. Economists anticipate central banks, particularly the U.S. Federal Reserve and the European Central Bank, to continue raising interest rates, which will reduce fuel consumption slightly.

Last year, the World Bank warned that central banks’ decision to raise interest rates in response to high inflation could lead to a global recession in 2023 when economic activity slows. In response, the Fed raised the benchmark rate by another 0.25 percentage points earlier this month, making it the 10th straight hike in the past 14 months. Meanwhile, the ECB also resolved to raise three main interest rates for refinancing operations, marginal credit facilities and deposit facilities.

According to TMBT Thanachart Bank’s research center, ttb analytics, the central bank monetary policy committee is expected to raise the benchmark interest rate by 0.25 percentage points from the current 1.75% at its next meeting on May 31. Wisak said higher interest rates should indirectly lower global oil prices and ease the financial burden on the National Petroleum and Fuels Fund, which was in the red last year after spending billions of baht to subsidize domestic diesel prices when energy prices soared in the aftermath of the Russia-Ukraine war.

Ofo predicts that oil prices will continue falling barring surprises from major oil producers and geopolitical conflicts. The benchmark price for Dubai crude fell from $91.13 a barrel in October to an average of $78.5 a barrel in March. Global oil prices are expected to continue falling to an average of $85 to $95 a barrel in 2023 as the global economy slows. PTT Prism’s Nitipat Sendaochai expects oil supply to slightly exceed demand this year, but global oil prices remain volatile, rising any time supply is disrupted.

Despite a weak economic outlook, oil prices are being pushed up by growing fears of tight supplies after the Organization of the Petroleum Exporting Countries (OPEC) and its allies decided to cut production. According to the Ministry of Energy and Business, overall fuel consumption rose to levels above 2019 in the first quarter of this year, but then fell during the pandemic.

From January to March 2023, fuel demand will average 161 million liters per day (MLD), up 5.65% from 151 MLD in the first quarter of last year. Diesel consumption increased by 0.2% year-on-year to 76.4 MLD. The ministry also reported that demand for gasoline, gasohol, and jet fuel has increased.

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