Petroleum is also known as crude oil where it is non-renewable and limited; petroleum is also hard to be formed because it will take millions of years to be formed, that is why it is non-renewable. It is also one of the main energy sources in Malaysia. PETRONAS is known as the national oil company for Malaysia. Besides that, we use petroleum for our daily life. In fact, we use petroleum more than other energy sources.
CONTENT
There are several causes affecting the demand and supply of crude oil in Malaysia. First is the cost of the crude oil, if the cost of petroleum is high, many consumers wouldn't be using cars and they would prefer using public transport because of the price of petroleum is high which they couldn't afford to pay price. Therefore this will cause the movement along demand curve of the good itself. If the price of petroleum has increased to high price, the quantity demanded will be low.
Another cause is the non-availability of cheap alternatives. Petroleum is one of the most important energy sources in Malaysia. There are no other cheap alternatives, for example there are no cheap petroleum. Except for the subsidized ones from the government. This will cause consumers to demand more petroleum for their daily life; it is basically used for their transportation purposes. This will rise in the demand curve where the demand curve for petroleum will shift right. This will cause the price and quantity demanded to rise.
The increasing number of vehicles in Malaysia will shift the demand curve of petroleum to the right. This will cause the price and the quantity demanded to increase. By having a lot of vehicles in Malaysia, the consumers need to consume more petroleum and that will increase the demand of petroleum.
Next is the income of the consumers. Petroleum is a normal good where it is positive related to income. As the income of the consumers increase, the demand will also increase, making the demand curve to shift to right.
Factors that affect the supply curve of petroleum in Malaysia are, first is the amount of suppliers. The amount of petroleum in this world is limited and non-renewable and will gradually decrease in the long run, when the amount of oil supply decreases, this will cause the supply curve of petroleum to shift left. When the supply curve shift left, the price of the good will increase and the quantity of supply will decrease. (Ross)
If the technology improves in Malaysia, better quality petroleum will be produced and the supply of petroleum will also increase as they could produce more because of the advance technology achieved. This will cause the supply curve to shift right causing the quantity supply to increase and the price of petroleum to be lower.
Next is expectations, if the expected future price of petroleum to be lower, the seller would sell more now because they know the price would fall in the future. When the expected future price of petroleum drops, the supply will increase leading to supply curve shifting to right where the price drops and quantity supply to increase.
Additionally, price of inputs will affect the supply curve of petroleum. For example if the price of inputs increase, the cost of production will also increase causing them to produce less and the supply curve for petroleum will eventually decrease. The supply curve will shift to left leading to higher price of petroleum and lower quantity supply.
In Malaysia, the government is providing the citizens with fuel subsidy. Fuel subsidy is the interventions by government on direct and indirect fuel subsidy on price or also cost. The advantages of fuel subsidy are, the poor or the less income people will be fewer burdens and this will cause them to save a lot of money on fuel. For example, the money saved from spending on fuel will be used in education, health and more. (Kong, 2012)
Next, it will also benefit the public transportation companies where they only need to pay less to get better quality of fuel for the transportation purposes. Therefore they could charge the citizens with lower price and this will benefit very greatly towards the citizens and tourist.
The disadvantages of fuel subsidy are, the high opportunity cost. It also actually benefited more of the rich people instead of the poor ones. The higher the fuel subsidy, the lesser the government spends on other development such as health, education system, and any other main projects. Petroleum is also price elastic because the change in price of the petroleum will have a big impact on the demand.
Next, increasing world oil price that cause the government to have difficulties in subsidizing fuel towards the consumers. The higher the price, the higher the government has to subsidize. For short term, there are many advantages but for long-term in subsidizing fuel for the people there are disadvantages in it.
CONCLUSION
In conclusion, fuel subsidies are very beneficial for most of the people in short-term. As in for the long-term, fuel subsidies are not beneficial for the government because the government had to deal with increasing amount if oil price where it will cause in increase of government expenses.
#notes - these are the references, gonna put it in APA format (do check about it)
http://www.malaysia-chronicle.com/index.php?option=com_k2&view=item&id=31203:should-the-government-remove-fuel-subsidies?&Itemid=2
http://www.ehow.com/info_8621442_factors-demand-supply-oil-prices.html
http://www.scribd.com/doc/5552213/factors-that-will-be-affecting-the-Demand-and-Supply-of-a-given-number-of-products
http://www.venocoinc.com/community/learning/primarypetrol.pdf
