RON95 Fuel Price Volatility

Dr. Aziz was a public policy researcher studying Malaysia's fuel pricing system. The government subsidized RON95 to keep prices affordable for middle-income citizens, but politicians debated whether to remove the subsidy entirely. Some argued subsidies distorted the market and wasted taxpayer money. Others warned that removing them would destabilize prices and hurt ordinary people. Dr. Aziz needed data to show what would actually happen if the government stopped controlling RON95 prices.

Dr. Aziz analyzed eight years of weekly fuel price data from April 2017 to April 2025—covering RON95, RON97, and Diesel. The data came from Malaysia's Ministry of Finance and reflected both market-driven prices and government interventions under the Automatic Pricing Mechanism (APM). He examined price distributions, volatility patterns, and outliers to understand which fuel types remained stable and which fluctuated wildly. The goal was to predict what would happen to RON95 if subsidies disappeared.

RON95 showed a bimodal distribution—two distinct price clusters. One cluster represented periods of subsidized pricing, when the government kept prices artificially low. The other cluster showed market-driven adjustments, when prices jumped upward following global oil price increases. This pattern proved government intervention created stability. Without it, RON95 would behave like unregulated fuels—volatile and unpredictable.

RON97 displayed a multi-modal distribution with frequent price changes beyond RM4.00. Unlike RON95, RON97 wasn't subsidized. It followed global crude oil prices directly. The distribution showed no stable clusters—just continuous fluctuation. This was the free market in action. Prices responded to every international shock: supply disruptions, geopolitical conflicts, currency fluctuations. RON97 was efficient but unstable.

Diesel showed a trimodal distribution—three price clusters reflecting different policy periods. Diesel pricing shifted based on government decisions about industrial subsidies and transportation costs. The distribution revealed that even partially regulated fuels experienced more volatility than heavily subsidized ones. Diesel wasn't as stable as RON95 but wasn't as chaotic as RON97 either.

Dr. Aziz measured volatility using standard deviation. RON97 had the highest volatility at 1.53—prices swung widely and unpredictably. Diesel showed moderate volatility at 1.14. RON95 had the lowest volatility at 1.02—the most stable of all three. The numbers proved subsidies worked as intended: they reduced price fluctuations and protected consumers from global market shocks.

RON97's rolling standard deviation spiked above 2.5 in 2022-2023—the Russia-Ukraine conflict, post-COVID oil price rebounds, and global supply chain disruptions. During those same periods, RON95 remained relatively stable because government subsidies absorbed the shocks. Consumers using RON95 barely felt the global crisis. Consumers using RON97 paid wildly different prices week to week.

Dr. Aziz ran Z-score analysis to identify outliers—rare price deviations beyond ±2.0 standard deviations. RON97 showed multiple outliers in mid-2022, with Z-scores exceeding +2.0. These weren't normal market fluctuations—they were external shocks that drove prices to extreme highs. RON95 and Diesel showed fewer outliers, staying within ±1.5 Z-score range. Subsidies prevented extreme price spikes even during global crises.

Dr. Aziz built a scenario model: What if RON95 subsidies were removed? Based on historical patterns, RON95 would shift from a bimodal distribution (stable clusters) to a multi-modal distribution like RON97 (continuous fluctuation). Volatility would increase from 1.02 to approximately 1.45-1.60—matching Diesel or approaching RON97 levels. Middle-income families budgeting RM200 per month for fuel would face unpredictable costs ranging from RM180 to RM240.

The findings had direct policy implications. Businesses relying on fuel—logistics companies, delivery services, taxi drivers—used RON95 because it was predictable. They could budget accurately and lock in long-term contracts. If subsidies disappeared, these businesses would face two choices: absorb higher costs and lose profits, or pass costs to consumers and lose customers. Either way, removing subsidies would disrupt operations without offering clear benefits.

Dr. Aziz recommended a phased approach. Instead of eliminating subsidies entirely, the government could introduce targeted subsidies for low- and middle-income households while letting prices float more freely for higher-income users. This hybrid model would preserve stability for vulnerable populations while reducing subsidy costs. He also suggested fuel price hedging mechanisms for businesses and investments in alternative energy infrastructure to reduce long-term dependency on volatile fossil fuels.

Today, Dr. Aziz's research informs policy debates on fuel pricing reform. His data shows that subsidies aren't just about affordability—they're about stability. Removing them wouldn't create market efficiency; it would create chaos for millions of people who depend on predictable fuel costs. The question isn't whether subsidies are expensive. The question is whether the alternative—volatile, unpredictable prices—would cost society even more.