KUALA LUMPUR: Economists see low oil prices to impact Malaysia in the near term but optimistic that it will bounce back to between US$45 and US$55 per barrel in the next six to nine months.
Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid said what is happening now is that concerns on weak demand for oil has become elevated.
He said this, coupled with Covid-19 pandemic, is expected to take a serious toll on major advanced economies as well as China.
“According to the International Energy Agency (IEA), China accounted for 80 percent of total oil demand growth in 2019.
"Thus far, high frequencies statistics in China has been very dismal. The fixed asset investment has tumbled 24.5 percent year-on-year in January and February, retail sales was down 20.5 per cent in January and February and Industrial Production Index (IPI) declined significantly 13.5 per cent in February,” he told NST Business.
He said on the bright side, Malaysian consumers would be enjoying cheaper fuel prices while contribution from petroleum related revenue to government coffers would be affected.
He said similarly, the oil and gas industries would also be affected as the oil majors would want to review their capital expenditure plan.
Juwai IQI chief economist Shan Saeed expect oil prices to bounce back to between US$45 and US$55 per barrel in the next six to nine months.
“The premises are demand for oil will go up, there will be some geopolitical risks that can impact the oil market, slump in US dollar and the fact that we expect that there will be bankruptcies, especially of shale oil companies in the US.
“Shale gas comatose cannot take the pressure. I would not be surprised if the bankruptcy amount touches between US$100 billion and US$300 billion in US energy market.
"There will be some massive selloffs in corporate bonds and lay-offs. Corporate bonds looks fragile with US$20 trillion outstanding according to the latest issue of The Economist magazine,” he said.
Meanwhile, Putra Business School associate Prof Dr Ahmed Razman Abdul Latiff said energy commodities plunged in Europe was due to various factors including slowing down of demand from China due to Covid-19 outbreak.
He said this slowdown is expected to continue for the next couple of months while demand from China start to picking up again.
"As for Malaysia, oil prices are expected to remain low for few more months and will definitely have an impact on government potential revenue.
"As long as the price remains above US$30 per barrel, there is an opportunity to post positive margin for this year albeit lower than previously forecasted,” he said.
To a question if the government would likely recalibrate 2020 Budget, Shan Saeed said it's too early for the government to make or revisit the Budget.
"I think the government need to analyse what are the major variables making impact on the global macro economy apart from the Covi-19 outbreak. The economic landscape is very challenging and it looks an uphill task for many policy makers in the advanced economies especially Europe/ USA.
“At this point of time, I think there’s no need for the government to go back and revise the budget, oil prices have been staying low for the last 30 years for 3/4 times but oil prices have eventually bounced back,” said Shan.
However, Ahmed Razman said the newly minted government would have no choice but to implement a calibration of the Budget 2020.
He said with the price going down to more than half, such calibration is needed since petroleum based revenue still constitutes 30.9 per cent of government total revenue.
“In addition, the slowdown of the economy coupled with falling KLCI as well as weakening of ringgit require the government to take these things seriously by enforcing several proactive measures such as immediate financial assistance for those badly affected such as retrenched workers and businesses that faced a liquidity crisis.
“At the same time, the government also needs to regain the investors and businesses confidence by continuing various business friendly policies and plans to ensure sustainability and long term growth of the economy,” he said.