—Reuters
PETALING JAYA: Malaysia’s petroleum revenue may drop between RM3bil and RM4bil if crude oil prices were to move towards the range of US$55 to US$60 per barrel.
This could potentially result in the widening of the the country’s fiscal deficit by between 0.15% and 0.2% of gross domestic product (GDP), said MBSB Research.
The research house added that lower crude oil prices led by oversupply in the global oil market could have a significant impact on Malaysia’s petroleum revenue as it would be US$5 lower than the government’s forecast of US$60 to US$65 per barrel.
Based on its analysis, the research house said the sensitivity of the government’s fiscal receipts to oil price movements is not fully proportional, at 0.81.
In other words, a 10% fall in oil prices could translate into an 8.1% decline in the government’s petroleum‑related revenue.
However, the net impact on the government’s fiscal position will be somewhat smaller, taking into account lower allocations for fuel subsidies.
Following subsidy rationalisation for diesel and RON95 petrol over the last two years, estimated annual allocations for fuel subsidies have been reduced to around RM10bil to RM12bil from RM18bil to RM20bil previously.
If oil prices were to hover around US$55 to US$60 per barrel, the government could save an additional RM1bil to RM2.5bil from lower fuel subsidy allocations this year, assuming the US$5 reduction in relation to the government’s oil price projection for this year.
The net impact from the US$5 drop in oil prices in widening the fiscal deficit will be around 0.03% to 0.15% of GDP.
Following the US military’s capture of Nicolas Maduro, the future of Venezuela’s oil industry largely depends on political developments.
MSBS Research said the potential influx of Venezuelan oil aligns with its current outlook on crude oil prices for this year.
The research house added that it believes that crude oil prices will remain low due to a substantial and growing supply surplus that demand will struggle to absorb fully.
It expects Brent crude oil to fluctuate between US$55 and US$60 per barrel this year, moderating from the average of US$68 last year.
The research house said the events in Venezuela may lead to other conflicts in the world starting or reigniting.
A repeat of the Israel-Iran war also cannot be totally discounted, it added.
Geopolitical analysts think that by United States securing Venezuelas oil would lower the impact of a possible blockade in the Straits of Hormuz should conflict reignite in the region.
The conflicts have so far had limited impact on Malaysia’s economy and corporate earnings, thus exerting limited impact on the local equity market.
However, while not expected, major escalations that significantly heighten the intensity of conflict and broaden the geographical area affected could substantially magnify the potential economic fallout for other countries.
