KUALA LUMPUR, Dec 9 (Bernama) — The fall in the oil price after the Organisation of the Petroleum Exporting Countries (OPEC) decided to leave output uncapped, has sent jitters throughout the market that the price could even hit US$20 per barrel.
However, such price will not be sustainable, an economist said.
Brent crude fell sharply since last Friday before settling at US$40.62 per barrel today, after the oil grouping failed to agree on a production ceiling, thus prolonging the oversupply condition in the market.
OPEC is currently producing around 31.5 million barrels per day (bpd) while the oversupply volume is estimated at around 500,000 to two million barrels.
While there is possibility of oil price dropping to US$20 per barrel, an economist from MIDF Research said such a level was unlikely and it would instantly rebound after touching it.
“A large number of oil companies will have to stop their operations at that price, leading to an immediate shortage of supply in the market.
“As such, US$20 per barrel is not our baseline scenario and it is quite unlikely that the market will set the oil price to be at US$20 per barrel,” he told Bernama.
He said Malaysia’s fiscal position would be impacted the most if oil price dropped to US$20 per barrel as the level was unsustainable for domestic petroleum production.
“If the average price for oil remains at US$20 per barrel for 2016 and 2017, we are expecting the government’s petroleum-related revenue will fall from the current expected value of RM31.7 billion to RM22 billion in 2016 and fall further to RM9 billion in 2017,” he said.
He said in order to maintain debt level below 55 per cent to gross domestic product, the government would eventually need to conduct further austerity measures, possibly causing the economy to a slowdown significantly thereafter.
Institute for Democracy and Economic Affairs (IDEAS) Chief Executive, Wan Saiful Wan Jan, said while the current low oil price was affecting the government’s revenue, it was benefitting the consumers.
“Consumers will be enjoying the lower price. So it is not all bad news for everyone. In fact, it is good news for consumers,” he said.
Meanwhile, MIDF Research Oil and Gas Analyst, Aaron Tan Wei Min, is optimistic Petronas’ projection of US$48 per barrel in the 2016 Budget is achievable in the future.
“While crude oil price is currently hovering at US$40 per barrel, the above projection was for the whole year’s average of 2016 and the price could rebound in the future,” he said.
Nevertheless, he said, certain sectors of the economy, were benefitting from the current situation, especially those heavily dependent on oil and gas such as aviation, transportation and manufacturing.
“These industries are enjoying from the lower cost,” he said.