MarsLee's Blog: Oil price nears US$100 mark

02-11-2007:

Oil price nears US$100 mark

KUALA LUMPUR: Oil prices surged to a record high of US$96 (RM325) per barrel yesterday, moving closer to test the US$100 mark. For Malaysia, a net exporter of oil, every US$1 increase translates into RM250 million in earnings per annum for the country.
Yesterday, US light crude oil rose US$1.71 or 1.8% to US$96.24, after the US Federal Reserve cut its interest rates by 25 basis points to 4.5%, which prompted a fall in the US dollar against most major currencies.
The Organisation of Petroleum Exporting Countries (Opec), which receives US dollars for nearly all the oil it sells, has not indicated any plans to pump more crude.
Crude oil for December delivery rose as much as US$1.71 per barrel to US$96.24, the highest since oil was traded on the New York Mercantile Exchange in 1983. The surge was sparked off by US refiners’ decision to draw down 3.9 million barrels from storage.
Commenting on the high oil price, Second Finance Minister Tan Sri Nor Mohamed Yakcop said yesterday it could even benefit the country.
“For every US$1 increase in crude oil (price), we could be better off by RM250 million per annum from the inflow (of earnings) to the country. We also see the revenue and earnings of Petronas (Petroliam Nasional Bhd) would be better, although we have to increase our subsidies but there is a net positive gain,” he said.
He said the net gains from the sale of oil would still be more than the subsidies given to the people.
Economists estimated that for 2007, the subsidies for fuel would be RM9.76 billion, up from RM7.68 billion last year.
Petronas sold 192.4 million barrels of crude oil in the financial year ended March 31, 2007, up from 184.9 million barrels in the previous financial year. Petronas’ total reserves as at Jan 1, 2007 were 26.49 billion barrels of oil equivalent.
However, economists are expecting the high oil prices to ease from next year as global demand dampens while supply increases.
RAM Holdings Bhd chief economist Dr Yeah Kim Leng believed signs of a global slowdown would ease expectation of an overly high demand and reduce pressure on oil price.
“The current oil price of above US$90 is not sustainable,” Yeah said, blaming the current prices as being due to speculation by commodity traders and fear of shortages due to geo-political uncertainties.
“Opec has contended that the current output (of crude oil) is enough for demand. But along the supply chain, the refining capacity may not have been able to keep up with demand,” he added. Even Opec believed the right market price should be about US$60 per barrel.
OSK Investment Bank economist Sia Ket Ee expected crude oil supply to increase after winter, barring any geo-political uncertainties.
“Even though oil price would moderate, it was unlikely to dip below US$50 per barrel because the global economy was still robust with the International Monetary Fund expecting a growth of 4.5%,” he added.
Sia said Malaysia was partly shielded from the fallout of high oil price, but there were concerns about imported inflation, especially for petroleum-based products like plastics, resin and petrol-chemicals.
The government may revise the retail price for petroleum which was last raised by 30 sen when crude oil price was US$62. “Now, it is US$96. There is a pressure for the government to do so,” Sia said.
On the whole, he said the increase in crude oil price would still be positive for Malaysia as a net exporter of petroleum. However, the government had to decide whether to continue subsidising as it would lead to misallocation of resources, he added.
Meanwhile, the ringgit closed higher against the US dollar, being quoted at 3.3310 at 5pm, up nearly 0.21% from Wednesday. It touched 3.290 in intra-day trade.
Economists said the ringgit, which was at a 10-year high against the US dollar, would help mitigate the impact of the soaring oil price.
Meanwhile, International Trade and Industry Minister Datuk Seri Radifah Aziz said it was not viable to continue to maintain the petrol subsidy at the current level.
The government was studying how much the oil price increase should be passed on to the industries, the commercial sector and the public, she told Bernama during a trade and investment promotion in Zurich.
She said the private and industrial sectors were given notice six months ago about a potential increase in oil prices and they had presented a report to the ministry.