Fuel to stay cheap for some, keeping oil expensive

By Emma Graham-Harrison

BEIJING (Reuters) - China, India and other nations that subsidise cheap petrol and diesel may be even less willing to raise prices than they were six months ago, aiding crude's ascent toward $130 even as demand deteriorates elsewhere.

While Indonesia appears set to raise prices as soon as this week, the world's fastest-growing oil users show little inclination to tackle their subsidy schemes, as fighting food-fuelled inflation has become their top priority.

That's bad news for oil consumers in the rest of the world, who face record crude costs partly as a result of demand growing unchecked in countries where pump prices have barely risen since the middle of 2006 -- when crude was in the $70s.

Even as the fiscal burden of subsidies mounts with each new record high on the NYMEX, two things have changed in recent months to stay policymakers' hands, for now.

One is the advent of food-price inflation, which has taken over from energy as the world's biggest price threat.

The other is the approach of major political events -- Beijing's summer Olympics and India's elections next year -- making them wary of anything that could rock the boat of society.

And with economies booming or oil revenues flowing, these countries are under less pressure than Indonesia, which may announce its first fuel price rise in two and a half years at a press conference scheduled for Thursday.

"The key for me is that the fiscal positions of all these players are relatively strong ... so they may be able to afford to retain low prices," said Jeff Brown, Singapore-based Chief Economist for FACTS Global Energy Group.