EXPERTS said last week that an increase in fuel prices in Myanmar on August 15 was in line with a global trend among governments of withdrawing fuel subsidies to deal with the rising cost of oil.

On Wednesday the price of petrol went from K1500 to K2500 a gallon, while diesel rose from K1500 to K3000. The biggest jump occurred with compressed natural gas (CNG), which changed from K10 to K50 a litre.

Oil prices have reached as high as US$78.8 a barrel in the past two weeks following news that US oil reserves have been falling. Many countries have responded to the high prices by cutting subsidies to fuel-consuming sectors.

The global oil market has become skewed in recent months as demand for fuel grows in developing countries whose governments use subsidies to keep oil prices at well below the free-market price.

As a result, growing oil demand in China, India and the Middle East has driven the free-market oil price ever higher for developed countries.

However, some governments of developing countries have found themselves financially burdened by their policy of offering oil subsidies.

Egypt withdrew its oil subsidies for the electricity sector on August 14, one day before Myanmar raised its fuel prices. Egypt’s Trade and Industry Minister, Rachid Mohamed Rachid, said the reduction in subsidies would save the government £15 billion in the next three years.

Economist U Khin Maung Nyo (Bawgabayda), who is also the editor-in-chief of Yangon-based International Economic Journal, said he thought last week’s rise in fuel prices in Myanmar had resulted from a reduction in oil subsidies by the government.

“The governments of many countries are having trouble offering fuel subsidies as oil prices go up. We already saw petrol prices in Myanmar go from K180 to K1500 a gallon after the government reduced subsidies in 2005,” he said.

In October 2005 the government decreed that all vehicles running in the public transportation sector in Yangon should convert from diesel and petrol to CNG. Most public buses have already made the conversion, which costs about K5 million for big buses and K3 million for small vehicles.

Although CNG now costs K190 ($0.15) a gallon in Myanmar, the price is low compared with countries where fuel subsidies have already been removed. For example, per-gallon CNG prices are about $6 in France, $6.20 in Hong Kong, $4.20 in India and $6.06 in South Korea.

Prices tend to be lower in countries where subsidies are still government policy. For example, CNG is about $3.04 a gallon in Thailand and $3.86 in Singapore.