ROLLER COASTER RIDE

CRUDE oil is expected to exceed US$100 a barrel by year-end before plunging to around US$60 late next year or early 2020, predicts IHS Markit oil markets and downstream vice-president Victor Shum. But while this means higher oil revenue for Malaysia, the

CRUDE oil is expected to exceed US$100 (RM410) a barrel by year-end before plunging to around US$60 a barrel, according to IHS Markit oil markets and downstream vice-president Victor Shum.

He said the price should gradually moved between US$75 and US$85 a barrel before experiencing a sharp jump to US$100.

Shum said it would then drop to US$60 a barrel by the end of next year or early 2020 on geopolitical risks and Iranian sanctions.

Analysts have said the government may not be able to keep subsidising fuel prices for long if the global oil price remained above US$70 per barrel.

They estimated that based on US$76 per barrel, the local fuel price at petrol stations should be about 40 sen higher than what it was now.

Since Pakatan Harapan won the general election on May 9, the price of RON95 petrol has remained at RM2.20 per litre, and diesel at RM2.18 per litre.

On the other hand, the potential US$100 per barrel oil price would be revenue accretive, given that it is higher than the 2018 Budget assumption of US$52 per barrel.

Analysts estimate that for every US$1 per barrel increase in global oil price, government revenue will increase by around RM300 million a year.

“We expect the average Brent price to chart about US$78 a barrel in the second half of this year and quite likely there will be some volatility and it will hover around US$75 to US$85 a barrel,” said Shum at the Asia Petrochemical Industry Conference 2018, here, yesterday.

“With the unpredictable United States President Donald Trump administration, we could envision a scenario where the oil price could hit US$100 a barrel, with the Iranian and Venezuelan output significantly reduced and no spare production capacity left from major Arab producers.”

He said the oil markets would be on edge and any unexpected disruptions would cause a very tight situation.

Shum said the industry was entering a new situation in the oil markets where the spare market capacity had become an indicator of oil price directions, as well as geopolitical issues.

“We can expect a major disruption of Iranian oil production and we may face a tighter crude oil market due to shrinking spare production capacity by the end of this year.

“The Trump administration’s efforts to change the rules of the global game in trade, security and alliances will create a wide spectrum of potential oil price paths.

“Prospects for world oil demand growth remain bright for now but trade wars and higher oil prices are big downside risks,” he added.

Another interesting development will be the US presidential election in the next two years, which Shum said would determine a change of economic policies and reduce geopolitical risks.

On August 16, the head of the new Iran Action Group, Brian Hook, announced that the US would sanction any country that purchased oil from Iran after the November 4 deadline.

China has shown no indication that it plans to cooperate with the US.