Petroleum is crude oil in its natural state which contains a variety of hydrocarbons, liquid organic and other inorganic compounds (Petroleum.co.uk, 2013). Malaysia is known for being an important producer of petroleum. It has the 23rd largest crude oil reserves in the globe. Among many oil companies found in Malaysia such as Caltex and Shell, Petronas is the only major oil company that is owned by the government. In year 2008, Petronas contributed RM67.6 billion to the government, which was also 44% of the government’s revenue (Kok, 2009). This shows that the petroleum industry is a significant contributor to Malaysia’s income.

The demand and supply of petroleum in Malaysia is influenced by various factors. In the case of demand of petroleum, one of the factors is number of cars sold in the country. According to data shown in Malaysian Automotive Association, the total number of cars sold in year 2000 was 343,173; while in year 2011, the number of sales rose to 600,123 (Malaysian Automotive Association, 2008). According to the International Energy Statistics, the consumption of petroleum (thousand barrels/day) in year 2000 is 141.677, whereas the consumption in year 2010 rose to 208 (U.S. Energy Information Administration, 2013). This shows a direct relationship between the number of cars sold and the demand for petroleum. The increase in public transportation affects the demand for petrol. When more people use public transport, total number of vehicles used for transport decreases, petrol consumption also decreases. Moreover, the sales of hybrid cars can influence the demand for petroleum. In 2012, sales of hybrid cars have risen from 8,334 units to 15,355 units (Star Motoring, 2013). As hybrid cars are less demanding in petrol consumption, the demand for petrol will decrease slightly. Lastly, consumer’s income affect the demand of petrol because the higher the income, the greater the petrol consumption because they can afford to spend.

Cost of crude oil affects the supply for petroleum (Caltex, 2013). When cost of crude oil increases, production cost increases, profit earned by the producers reduces, price becomes expensive and this will decrease the demand for petroleum slightly. The government policy affects the petroleum supply. For example, the government entrusted the country’s petroleum to a government owned company called Petronas through the Petroleum Development Act 1995 (KeTTHA, 2010). With the establishment of Petronas, exploration and extraction of petroleum increases. Finally, the depletion of resources affects the supply of petroleum. Since year 2000, crude oil reserves have been depleting gradually (Othman and Jafari, 2011, pg12). When there’s a shortage of resources, supply of petroleum decreases. Price of petrol will spike.