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The Oil Fuel Fund Office (OFFO) reported a deficit of B98.942 billion as of Oct 4, comprising B58.429bn in the oil account and B40.513bn in the liquefied petroleum gas (LPG) account.

The Fund is also carrying B38.053bn in outstanding loans to financial institutions.

The deficit has been driven by efforts to shield consumers from soaring global oil prices during the ongoing Middle East conflict. At its peak, the Fund was paying out about B700 million a day, or more than B20bn a month, in fuel and LPG subsidies.

The Ministry of Energy said the Fund has now begun reducing its exposure, cutting the daily compensation burden to about B375mn.

Diesel subsidies, which reached as much as B5-6 per litre during the crisis, have been reduced to about B2-3 per litre.

The Oil Fuel Fund Administration Committee has also increased retail fuel prices by B0.75 per litre across all fuel types as part of efforts to reduce the Fund’s daily outflow.

The Fund had only recently returned to a positive balance of B505mn on Feb 1, its first positive balance in four years.

But the situation deteriorated rapidly after global oil prices surged following the escalation of the Middle East conflict on Feb 28 and disruption to crude oil shipping through the Strait of Hormuz.

Oil prices subsequently reached US$120-130 per barrel, while Thailand’s diesel price hit a record B50.54 per litre on April 5.

Energy Minister Akanat Promphan, who took office on March 30, responded by using the Oil Fuel Fund to subsidise retail prices while also ordering reductions in refinery-gate prices.

Seven rounds of refinery-gate price reductions have been imposed this year, including cuts of B5 and B3 per litre in April, a B2.40 reduction during July and August, and a further B4 reduction effective until Oct 31.

The Ministry says the measures have recovered more than B30bn from refinery margins to help support domestic fuel prices.

However, the Fund’s worsening finances have prompted the Ministry to prepare an “exit strategy” aimed at gradually reducing subsidies and slowing the rate of cash outflow.

Three options are now being considered.

The first is to seek another B1-2 per litre reduction in refinery-gate prices by further drawing on refinery margins.

The second is a reduction in the diesel excise tax, currently B6 per litre, by at least B2.

The third is another round of borrowing guaranteed by the Ministry of Finance.

The Ministry says the existing B20bn credit line is insufficient given the Fund’s current deficit.

The government previously borrowed heavily to support the Fund during the energy crisis following Russia’s invasion of Ukraine. Some B105.333bn was borrowed during 2022-23, with repayment originally scheduled to continue until 2029.

The Fund reached a record deficit of B132.671bn on Nov 27, 2022.

If the current deficit passes B100bn, Akanat will become the second Energy Minister to preside over a deficit at that level.

The Ministry said the latest policy options remain subject to direction from Akanat before any final measures are approved.

The worsening Fund position comes as global oil prices have begun to ease following increased Middle Eastern exports and the release of emergency reserves by G7 countries.

Seven-day average crude exports from the Middle East reached 18.5mn barrels per day on Oct 1, according to shipping data cited by the Ministry, above the pre-war average of 18mn barrels per day.

The Ministry nevertheless expects continued volatility, particularly as winter approaches and energy demand traditionally increases.

Geopolitical tensions involving the Middle East and the United States’ position on Iran are also expected to remain key risks.

The Fund’s financial problems are already feeding into broader inflation pressures.

Thailand’s headline inflation rose 2.82% year-on-year in September, with higher domestic fuel prices identified as a major factor. Energy accounted for 1.85 percentage points, or more than 60%, of the September inflation rate.

The Trade Policy and Strategy Office has raised its 2026 headline inflation forecast to 1.8-2.2%, from an earlier range of 1.5-2.5%, while retaining a midpoint of 2%.

The government’s 2027 public debt management plan, approved by Cabinet on Sept 29, currently contains no provision for guaranteeing new Oil Fuel Fund borrowing.

The Ministry of Energy was due to announce further measures addressing the prolonged energy price crisis on Oct 7.