Momentary halt in oil price

THE Saudi Arabia-led Organisation of Petroleum Exporting Countries (Opec) and its allies are said to increase oil production by one mil- lion barrels per day, a move that is expected to cool down oil prices.

The increase in production is almost double what fund managers was expecting. They were looking at Opec and non-Opec countries increase production by between 500,000 to 600,000 barrels per day.

The deal came about as Opec was under pressure from the US to raise output to cool down the price of oil that has hit its highest levels in four years. It also comes despite opposition from Iran that does not want Opec and its allies to accede to the demands of the US.

The immediate outlook, according to some traders, is that the price of oil would not go up much. Brent crude, which was hitting the US$80 per barrel mark, is likely to see some softening.

However they do not think that the price would stay low for long because the demand for oil was on the up-trend due to the growing global economy. The additional demand came amidst supply disruption from Venezuela and unplanned outages in other oil producing countries and sanctions in Iran.

Of the one million barrels, Opec countries would supply 600,000 barrels per day while the rest would come from non-Opec producers. However there is a possibility that some of the non-Opec countries would take this opportunity to produce more oil. However, the dynamics going forward suggest that the price of oil is on the uptrend.

Traders warn that there is not much spare capacity left among major oil producers except for Saudi Arabia and if the demand keep on increasing, it would not be long before the price of oil trends up again.

What does this mean for Malaysia? It bodes well for the government as its revenue would be higher and it means a better outlook for the ringgit against major currencies.