The week that was


  • Corporate News
  • Friday, 24 Apr 2020

The price of crude oil fell so much this week in the US that some traders paid buyers US$40 a barrel to take delivery in May.

Oil’s epic collapse

The price of crude oil fell so much this week in the US that some traders paid buyers US$40 a barrel to take delivery in May.

The West Texas Intermediate (WTI) futures contract for May settled below zero at negative US$37.60 a barrel on Monday.

This has never happened before for the US crude oil benchmark.

The May contract, however, rebounded on Tuesday, to close on its expiry date at US$10.01 a barrel.

It was traded at above US$60 a barrel in January.

The epic price crash was in part due to market mechanics, as traders shifted their positions from May contract to June,

But it also highlighted the massive oversupply situation in the oil market, as energy demand dries up due to the novel coronavirus pandemic.

Even the historic deal last week by major oil producers led by Opec and its allies to cut output by 9.7 million barrels a day, or about 10% appeared to be too little, too late.

The International Energy Agency (IEA) estimated demand for oil to plunge by a record 24 million barrels a day in April.

Even with a recovery forecast in the second half of the year, the IEA predicted overall demand in 2020 to drop by 9.3 million barrels a day. And with oil producers running out of storage space, the price of oil is in a freefall.

The price of a barrel of WTI crude to be delivered in June, the new spot month contract, have plunged too.

At one point on Tuesday, June oil fell as low as US$6.50. The contract was traded at US$15.22 a barrel on Thursday.

The Brent crude futures, the global benchmark, dived below US$19 per barrel on Tuesday to their lowest level since 2002. The contract for delivery in June was hovering at US$22.20 yesterday.

Deflation rears its head

THE falling price of crude in the international market has made its way into the local market with prices of fuel getting cheaper by the week.

So far this year, the price of RON 95, the most widely used blend of petrol at local pump stations, has dropped 40% to RM1.25 a litre.

This compared with RM2.08 a litre at the start of the year.
However, with personal movement restricted, the benefit of the price reduction is not being felt by many, except those who needs to carry out essential work.

On a broader economic perspective, the falling prices of fuel is driving the consumer price index (CPI) lower.

The Statistics Department said on Tuesday the CPI declined 1.2% in March.

With fuel prices expected to remain low, at least in the near term, the risk of deflation is rising. Economists said falling prices of goods is bad news as it will weaken economic recovery.

Unemployment time bomb

With most businesses and factories staying shut since March 18, things are looking bad for the job market.

Earlier this week, the Federation of Malaysian Manufacturers (FMM) warned that the number of job losses is likely to jump if the situation persist.

A recent survey conducted by FMM on the impact of the MCO showed that almost two-third of companies polled might have to implement drastic cost-cutting measures, including pay cuts and layoffs, to stay afloat.

Another trade group, the Malaysian Employers Federation has estimated that around two million workers risk losing their jobs.

This could push the country’s unemployment rate to a staggering 13% of its working population.

This is significantly higher that Bank Negara’s projection of 4% unemployment.

Latest data from the Statistics Department showed that as at February, unemployment stood at 3.3% or 525,500 people.

Sime Darby exits Tesco business

Sime Darby on Wednesday announced that it had entered a deal with Thailand’s CP Group to sell its 30% stake in Tesco Stores (M) Sdn Bhd for RM300mil.

The deal marked the conglomerate’s exit from the hypermarket business it first ventured into in 2002. Analysts said Sime Darby got a good deal from the disposal.

UK-based Tesco Plc, which has agreed to sell its business in Thailand and Malaysia to CP Group, has valued Tesco Malaysia to be approximately £100mil (RM540mil).

Based on the valuation, Sime Darby’s 30% share is worth RM162mil.

Sime Darby estimated to net RM270mil from the sale.

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oil , price , Sime Darby , Tesco , unemployment , deflation ,

   

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