PETALING JAYA: Saudi Arabia, Nigeria, Colombia and Malaysia are the clear-cut winners if the recent oil price rise continues and is more supply-side driven, says Nomura Global Markets Research.
In its emerging markets (EM) insight, it said for the emerging economies, the large net oil importers with weak economic fundamentals would possibly be more impacted by the rally in oil prices than it would benefit large net oil exporters.
“We assess the potential impact of sustained, higher oil prices on 26 EM economies. The clear cut winners include Saudi Arabia, Nigeria, Colombia and Malaysia, and the clear-cut losers are Turkey, India and the Philippines,” it said.
The research house said that although Malaysia has become a small net importer of oil (crude oil and refined petroleum; 0.2% of GDP), it remains a major exporter of LNG (3% of GDP) – the price of which is closely linked to oil, but with a few months lag. Therefore, it remains a large beneficiary of higher oil prices.
“We estimate every US$10 a barrel increase in the price of oil would widen the trade surplus by about 0.4% of GDP, which would help to keep the current account in a comfortable surplus (3.6% of GDP as of Q4 2017),” it said.
As the government has removed fuel subsidies, CPI inflation is therefore more sensitive to oil prices. Nomura Research’s estimates show that the CPI would rise by about 0.6pp on a US$10 a barrel rise in oil price.
If the current level of oil prices is sustained, fuel prices could rise sharply after the general election is held on May 9 and 2018 CPI inflation could rise above its 2.5% forecast towards the top end of Bank Negara Malaysia’s (BNM) 2%-3% forecast range.
However, the government still collects sizable oil revenues (14.8% of 2018 total budgeted revenue).
This would provide more fiscal room after the general election and reduce the need to significantly cut spending in H2 to meet the full-year fiscal deficit target of 2.8% of GDP.
“Overall, higher oil prices would raise upside risks to our GDP growth forecast of 5.5% in 2018 from 5.9% in 2017.
“This, in turn, could provide space for Bank Negara Malaysia, which we expect to stay on-hold in 2018, to further normalise monetary policy, raising the risk of another 25bp rate hike later this year,” it said.
Meanwhile, CIMB Equities Research believes that a rising oil price trend will be positive for all oil and gas stocks, either directly via exposure to higher selling prices of crude oil and oil products.
In its strategy report issued yesterday it said indirectly oil and gas majors become more confident in capex spending, which will eventually feed into demand for services.
A higher crude oil price will also be supportive of crude palm oil (CPO) prices and positive for PETRONAS CHEMICALS GROUP BHD, CIMB Research said.
Airlines are the biggest losers from higher oil prices.
“We have factored in a jet fuel price of US$75 a barrel for CY18 forecast, against the year-to-date (YTD) average of US$78 and spot price of US$83.
“If jet fuel prices average US$83 for CY18 forecast, we estimate that AIRASIA Group Bhd’s core net profits may be negatively impacted by approximately 30%, while AIRASIA X group core net profits may be impacted by as much as 60%, even after factoring in the stronger ringgit,” it said.
CIMB Research said its valuations of oil and gas companies are based on Brent crude oil prices averaging US$66 in CY18 (against the YTD average of US$68 and spot price of US$74), rising to US$71 in CY19F and US$77 in CY20F.
“Most of the companies we cover are service providers and hence, do not have a direct exposure to oil prices.
“The company with the greatest direct exposure in our universe is Sapura Energy, which is expected to produce 5.2mil barrels of oil equivalent (boe) in 2018F.
“Hence, a US$1 a barrel increase in oil price will allow Sapura Energy to book in an additional RM21m in earnings, which is about 14% of our core net loss forecast of RM152mil for FY1/19,” it said.
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