PETALING JAYA: The attack on Saudi Arabia’s East-West Pipeline and the seizure of the Bab al-Mandab – one of the world’s critical maritime choke points – have collectively taken about 5% of the global oil supply off the market.
BIMB Research said the short-term escalation will drive oil prices higher, with Brent crude prices testing between US$110 to US$120 per barrel.
Oil prices traded at US$104.86 per barrel at the time of writing.
But more importantly, the research house reckons the duration of the disruption matters more than the headline oil price spike.
It pointed out that the East-West Pipeline could take up to six weeks for repairs, and the extended shutdown could push production shut-ins.
On the other hand, Houthi rebels effectively seized the critical Bab al-Mandab Strait, thus declaring it closed to Saudi shipping.
BIMB Research has referred to this as a “double choking” – Bab al-Mandab saw tanker crossings rise 30% when the Strait of Hormuz is still shut.
What does this all mean for Malaysia?
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said Malaysia’s economy is bound to feel the impact.
He told StarBiz that there will be both pros and cons.
“In the upstream sector, the players in the oil and gas sector will be the immediate beneficiaries as higher crude oil prices will translate into higher revenue.
“However, the downstream sector will face higher input cost,” Mohd Afzanizam said.
He added that downstream players need to focus on operational excellence that will reduce their operating cost and productivity level.
The response to that should be to leverage on technologies to crystalise the benefits, he said.
According to Mohd Afzanizam, the general impact on the economy will be felt in fuel costs becoming higher, and directly impacting logistics firms.
“The government would intervene through subsidies to help businesses cushion the impact and the citizens at large.
“But still, it will be a high-cost environment,” he noted.
For businesses, he said the key priority will be cashflow management.
“Businesses will need to meet working capital requirements such as inventories, short term debt and operational expenditure.
“Households will also need to prioritise their daily expenses, especially balancing the needs and wants.
“These are the adjustments that will take place during these uncertain times,” Mohd Afzanizam opined.
On the government’s side, he added that the key question will be how they can prioritise spending on the fuel subsidy programme.
“It is clear now that the prevailing fuel subsidies mechanism would need to be retargeted to those who are deserving and vulnerable to the price shock,” Mohd Afzanizam said.
Meanwhile, BIMB Research said with the ongoing situation in Saudi Arabia, it estimates a de-escalation should take place within four weeks, basing this on previous situations.
“The looming mid-term elections should also push the United States to strive for a combination of lower pump prices as well as some sort of political victory.”
As for companies, the research house noted that Hibiscus Petroleum Bhd
will capitilise on a higher oil price environment through rising production.
Similarly, the sentiment surrounding Hengyuan Refining Co Bhd is that the company is exceptionally well positioned to benefit from the current strength in refined product cracks.
“While crude oil prices have risen sharply, refined product prices have increased by an even greater magnitude, resulting in significantly wider refining margins,” BIMB Research added.
Moreover, the research house said Petronas Chemicals Group Bhd will directly benefit from the sharp increase in methanol product prices, with its Malaysian gas feedstock providing some insulation from the global energy shock.
