Contrary to popular opinion, National Bank Financial suggests that oil prices could fall, if Asian governments find they can no longer sustain massive subsidies, curtailing demand.

“Many pundits have recently upgraded their oil price forecast due to apparent insatiable demand from Asia,” NBF notes in a new report. And, it says indeed most of the rise in oil prices in recent years has been driven by a demand pull rather than a supply shock.

But it also points out that many governments across Asia subsidize oil products. And it says that these subsidies have so far limited the pass-through to final goods inflation and encouraged people to maintain their spending patterns.

“For many countries, however, the fiscal strain of providing subsidies at US$70 oil is now proving to be too much,” it suggests. “In recent weeks, India, Indonesia, Thailand, Viet Nam and Malaysia have announced the reduction or elimination of subventions. In our opinion, this development could set the stage for an outright decline in oil consumption.”