High oil prices can improve Malaysia's trade balance

PETALING JAYA: While higher oil prices could stunt economic growth and increase inflation, Malaysia could positively gain in terms of improving trade balance, according to Maybank IB Research.

“Malaysia, being the only net oil exporter within Asean-5 major, is in a saver spot. While higher oil prices are negative on growth and inflation, we estimate 0.7 percentage point (ppt) off Malaysia’s real gross domestic product growth and higher inflation by 0.6 ppt for every US$10 per barrel higher crude oil prices above our base case forecasts, on a full year basis.

“It is positive from trade and budget perspectives, improving the trade balance by RM400mil and raising Government revenues by RM4.2bil,” the research house said in a report.

The Asean-5 comprises Indonesia, Malaysia, the Philippines, Singapore and Thailand.

New York light sweet crude has been steadily rising to US$106.52 per barrel at press time yesterday from US$91.66 per barrel on Jan 9.

Maybank IB predicted three airlines – MAS, AirAsia, AirAsia X – would feel the brunt as fuel is a significant cost component to these companies.

“With Malaysia Airports Holdings Bhd’s (MAHB) revenue being derived from the airlines, any structural problems facing the airline industry will ultimately have an impact on MAHB.

“The impact on Tenaga Nasional Bhd is just marginal as we forecast oil and distillates to account for only 0.2% and 0.8% for generation and fuel costs respectively in financial year 2015,” it said.

Maybank IB said it would be mildly positive for the plantation sector as crude oil and crude palm oil prices had exhibited a positive correlation in the past, although the correlation had weakened of late.

“Every US$10 per barrel rise in crude oil price is equivalent to about RM235 per tonne more for CPO price, benefiting the upstream players more.

“A sustained high oil price environment is positive for the oil and gas service providers, as capex spending by the oil majors is also likely to rise,” it said.

Maybank IB said a sustained rise in crude oil prices weighed on the recovering global economy in the form of higher inflation, which could lead to response by central banks and it would add to the vulnerability of countries’ balance sheets, particularly those that were net oil importers.

“Internal tension and fighting in Iraq have drawn concerns to global crude oil supply, with Iraq contributing 3.3 million barrels or 11.2% to Organisation of Petroleum Exporting Countries’ daily crude oil production of 29.8 million barrels in May and 3.7% to the global daily production of 90.9 million barrels.