Crude oil touches US$80 a barrel

Commodity at highest level since November 2014

KUALA LUMPUR: Brent crude oil touched US$80 per barrel yesterday, the highest since November 2014, which will translate to higher oil revenue for the government.

Analysts estimate that the government would be able to collect about RM5bil to RM6bil in additional revenue should global oil prices average at US$70 per barrel this year.

Under Budget 2018 by the previous Barisan Nasional (BN) administration, it had forecast the price of crude oil to average at US$52 per barrel.

“Each US$1 per barrel in excess of the Budget 2018 average oil price assumption would translate to RM300mil, as provided by Ministry of Finance officials from the previous government.

“At the year-to-date average oil price of US$70 per barrel, the government expects to collect an additional oil and gas revenue of RM5.4bil,” said CIMB Research in a report yesterday.

Meanwhile, Alliance Bank Malaysia Bhd chief economist Manokaran Mottain said although the fuel subsidy would increase due to higher crude oil prices, the Government would also gain higher revenue.

He pointed out that the subsidy cost for the government is likely to be around RM3bil if it is to subsidise pump prices between RM2.20 and RM1.80 per litre, while the government will gain an additional income of about RM6bil, assuming that Brent crude oil averages at US$70 per barrel for the full year of 2018.

“There would be extra oil revenue for the Government despite higher fuel subsidies,” he told StarBiz.

For the past seven weeks, the price of the widely used RON95 petrol has remained the same at RM2.20 per litre, while the Euro 5 diesel was kept at RM2.28 per litre.

In the meantime, the price of Brent crude has jumped 13% since the start of April.

The International Energy Agency (IEA) said that while geopolitical fears helped push Brent prices up in recent days, the underlying fundamentals are also mostly bullish.

Paris-based IEA said that the global economy was still “doing well,” and that “underlying demand growth remains strong around the world”, although it warned that demand could be impacted especially with crude oil prices having risen by nearly 75% since June last year.

The IEA expects that global oil demand would average 99.2 million barrels per day (bpd) in 2018, although Goldman Sachs said consumption would cross 100 million bpd ”this summer”.

And although supplies currently only stand at 98 million bpd due to supply cuts led by the Organisation of the Petroleum Exporting Countries (Opec), the IEA said ”strong non-Opec growth ... will grow by 1.87 million bpd in 2018.”

Meanwhile, US bank Morgan Stanley has raised its Brent price forecast to US$90 per barrel by 2020 due to a steady increase in demand.

The local benchmark FBM KLCI closed lower yesterday, despite the rally in global crude oil prices.

The FBM KLCI was down 3.82 points or 0.21% to 1,854.44 yesterday, with decliners leading advancers 570 to 438 and 333 counters unchanged.

Despite the higher global oil prices set to boost government income, the move to scrap the goods and services tax (GST) from June by reducing it to zero has caused concern among credit agencies on how the government would narrow the fiscal deficit.

CIMB Research estimates the revenue shortfall from the GST removal at RM25.6bil.

“We were surprised by the early implementation of the GST abolishment and the lack of details on budget-balancing measures,” it said.