BANKS CUT PRICE OUTLOOK
2019 Budget recalibration imminent if Brent stays around US$60 per barrel, says economist
MORE leading global banks are following in Goldman Sach’s footstep in lowering the average Brent crude price forecast to US$60-US$65 (RM245-RM266) a barrel this year.
This has pushed the consensus target down to US$70 a barrel from US$72 last year.
The new forecasts are based on the expiry of United States’ sanction against Iran in May and uncertainties in the industry due to the US-China trade war.
There was fear in the market that demand for oil would continue to be lacklustre, they added.
An economist believes a budget recalibration is imminent for Malaysia if Brent crude trades around US$60 per barrel for the rest of the year. This is despite the Finance Ministry saying the government would only recalibrate the budget if the oil price averages US$50 per barrel.
The Brent price average year-to-date is US$57 a barrel.
Banks that have cut their forecasts recently included CMB International Capital Corp Ltd, Dubai-based Emirates NBD, French multinational investment bank Societe Generale, Japan’s MUFG Bank Ltd and Spanish multinational Banco Santander.
CMB International, a wholly-owned subsidiary of China Merchants Bank, said the sanctions against Iran would play an important role on oil price and supply.
“We believe uncertainties from sanction waivers are still high,” said the investment bank, which forecasts Brent to trade at US$60 to US$65 a barrel this year.
It said the oil market was following the US-China trade negotiations closely as leading economic indicators had exhibited weakening signals, which would likely drag down global oil demand if the trade war continued.
Putra Business School business development manager Associate Prof Dr Ahmed Razman Abdul Latiff said the government might have to recalibrate the 2019 Budget if the oil price continued to average at US$60 a barrel.
“The budget was based on an oil revenue of US$70 a barrel. So if the price remains at US$60, the government has to recalibrate its budget, probably by delaying some of the proposed expenditures,” he told NST Business.