Crude oil prices recover

Demand is expected to go up as more countries are opening their economies after months of lockdown.

PETALING JAYA: Crude oil prices continue to rise as demand is expected to improve as more countries are opening their economies after months of lockdown due to coronavirus disease (Covid-19) pandemic.

Yesterday, global crude oil prices jumped more than 2% after major crude producers extended their output cuts to the end of July.

The international benchmark index climbed to as much as US$43.41 per barrel yesterday, before subsiding to US$42.51.

Brent crude oil has nearly doubled since April, after it fell below US$20 per barrel thanks to the unprecedented production cut by organisation of the Petroleum Exporting Countries (Opec), Russia and other allies, collectively known as Opec+.

Icon Offshore Bhd managing director Datuk Seri Hadian Hashim said that the oil and gas sector (O&G) sector is slowly recovering and expected that oil price could be trading between US$35 and US$40 per barrel this year.

“The demand for oil is expected to go back to pre-pandemic level by November as there is more clarity in the economy,” he told Starbiz.

He reckoned that oil price recovery will accelerate next year following some period of adjustment from the pandemic and forecasted higher economic growth in 2021.

Hadian pointed out that there will be consolidation among the local service providers should the low oil price environment prolonged for a period of time.

“The pandemic has caused a lot of changes in asset value not only in Malaysia and around the world,” he said.

It is worth noting that many oil majors around the world had already cut their capital expenditure (capex) for this year which in turn would see a slow order book replenishment among the service providers.

Taking the cue from the global trend, national oil company Petroliam Nasional Bhd (Petronas) had recently announced to cut its capex and opex for this year to cope with the current low oil price environment.

Alliance Bank chief economist Manokaran Mottain said oil price recoveries will be backed by more economies opening up.

“The fears of Covid-19 were blown out of proportion. Now, the outbreak has been contain, for example New Zealand has declared it’s free from Covid-19.

“The US is also on the recovery path as the unemployment rate has improved.

“Oil prices should pick up as global economy recovers,” he said.

However, for Malaysia, he said the weakness in global oil prices could reduce the government’s revenue for this year.

Oil-related products contributed about 30% to government’s revenue.

As such, Manokaran reckoned that the government would need to diversify its revenue to mitigate the loss in revenue from oil.

“The government is likely to introduce goods and services tax (gst) to diversify its revenue based, or raise new borrowings as last resort,” he said.

“Amid restricted government coffers to finance the stimulus measures, we reckon the central bank can raise funds through the re-issuance of Malaysia Savings Bond, also known as Bon Simpanan Malaysia,” he said, when asked about the government deficit.

Maybank IB Research said the policy revision by Opec was sentiment positive, which would strengthens and accelerates the collective effort to correct imbalances in the oil market and provides a strong support to oil price.

“Simply put, the worst is over for the sector – supply cuts are in motion, demand is rising and the oil price is recovering,” it said in a report yesterday.

“The demand for oil is expected to go back to pre-pandemic level by November”.

Datuk Seri Hadian Hashim