You missed the important bit:
It's not "high diesel prices force service cutbacks", it's "government price controls force service cutbacks". Similar to the impact of fixed fuel taxes.
That's a good distinction, but either way we are talking about demand response to rising prices. The difference is whether the government or consumers decide. Cutting service by 30% will reduce ridership, but allowing the fares to increase would also reduce ridership, which in turn would likely result in service reduction. So either way you wind up with both reduced ridership and reduced service levels, both due to a 50% in fuel prices.
In terms of impact on oil demand, this policy will induce a diesel consumption reduction from 500kl per month to maybe 350kl. Arguably allowing the bus company to raise rates could have sustained higher consumption levels. Such a policy would be more favorable for oil interests, but the social downside could have been forcing the most economically vulnerable riders to go without any motorized transport. Imagine being a poorly paid worker who must cut back on food for your family so that you can pay higher bus fare to get to work. If you're a well paid worker, and the buses become intollerably crowded, then you may have other options using private passenger vehicles or commercial shuttles. This, of course, could result in higher demand for gasoline and private transport. But this comes down to consumers deciding between crowded and less frequent buses with low fares or other more expensive but more comfortable and convenient alternatives.
The real damage here is that the diesel buses will lose value as assets of the bus company. They start withba fleet of 130 buses. A 30% service reduction implies that a fleet of 91 to 100 buses is all they need for reduced operations. To sustain a 130 bus fleet well utilized requires replacing about 8 to 10 old buses with new each year. So at a reduced service level, this company will be able to avoid buying new buses for 3 to 4 years. So the government policy is effectively forcing the bus company to canabalize long term assets (bus fleet) to sustain cash flow for operations. Cash spent on higher fuel prices is cutting into cash that would have into refreshing the fleet.
It is interesting to think through the long term implications. First this is very bad for diesel bus makers. Global demand for new diesel buses could plummet. In the short run this is not particularly good for electric bus makers either because fleets of transit buses are oversupplied and used buses are cheap. But longer term as demand for new buses pick back up, i suspect that electrics will be the most compelling option out there. BEV buses offer maximal protection against high fuel cost. Diesel and CNG buses are vulnerable to this loss of value, and the pain of that value loss will be quite present in the memory of fleet mangers and policymakers.
So this Bankok company could see its fossil fleet of 130 shrink to 100 over the next 4 years, but it may never build it back up with new fossil buses. Rather it will be build back up with electric buses, and the fleet of 100 diesel buses will continue to decline 8 to 10 buses ear year.
This kind of dynamic illustrates the potential for a surge in diesel price to bring about a permanent reduction in diesel demand. Fleet assets that are devalued by a rise in diesel prices might never be replaced with diesel consuming asset even as diesel price come back down.
This risk is made even worse by the effect of the IMO low sulfur maritime fuel rule. As the oil industry retools to make more diesel and less residual fuel, the price of diesel will sustain upward pressure for many years, maybe out to mid-2020. So the whole diesel fleet is imperiled to lose value and ultimately be replaced by electric assets.
