‘NO DRASTIC IMPACT ON ECONOMY’
Move to recalibrate 2019 Budget should only be considered if commodity falls below US$30 a barrel, say economists
THE sharp drop in global crude oil prices is not expected to have a drastic impact on the country’s economy. Brushing off uncertainties, economists say any notion to recalibrate the 2019 Budget should only be considered if the price of the commodity falls below US$30 (RM125.40) a barrel.
Global Brent crude price plunged from US$86.29 a barrel on October 3 to around US$62 a barrel yesterday.
Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid said the decline in crude prices could have an impact on oil subsidies as well as oil revenue.
“However, the cost of oil production was still competitive for oil-producing firms like Petroliam Nasional Bhd,” he told NST Business.
The drastic drop in oil prices has affected the prices of two other major commodities, namely palm oil and rubber.
Crude palm oil prices and SMR20 rubber prices, which had traded at RM2,156 a tonne and RM5.85 a kilogramme, respectively, on October 17, slipped to as low as RM1,900 and RM5.139, recently.
Afzanizam said based on data from Bloomberg, rental rates for oil-drilling rigs stood at US$73,000 a day last month compared with US$114,000 a day in 2014.
“Hence, the profitability of oilproducing companies was still good at current oil prices due to low production costs.
“However, if oil prices continue to decline to the level that was reached in early 2016, which was under US$30 a barrel, there would be a need to revise the existing budget,” he said.
According to Moody’s Analytics, the price of another crude oil benchmark, the West Texas Intermediate, was projected to be at US$69.1 a barrel this year, and will move to US$67.2 a barrel next year and US$63.5 a barrel in 2020.
S&P Global Ratings revised Brent’s projection forecast to US$70 a barrel next year and exects it to stay firmly above US$80.
The initial forecast of the rating firm for Brent was US$65 a barrel next year and US$60 in 2020.
Afzanizam said the movement of the local currency value takes into account the current and future oil price situation as the government’s dependence on oil sources is increasing.
“We need to realise that oil price movements are also influenced by market speculation activities.
“It is, therefore, difficult to make decisions based on the oil price movement in a short period of time,” he said.
Meanwhile, stock market analyst Nazarry Rosli believes the sliding oil prices will lower the government revenue and affect spending on planned developments.
He said it would also affect the ringgit as there would be pressure on the local currency against the US dollar due to the expected reduction in government revenue.
For the near term, he expects the ringgit to test and hover around 4.20 level against the US dollar.