Oil price plunge: Heads they win; tails we lose

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The plunge in global oil prices will lead to much lower Petronas – and consequently, government – revenue and worsen the government’s fiscal deficit.

Some key points extracted from this report in the Edge:

– low oil prices are a huge bonanza for all of Asia, except Malaysia

– while Malaysia is now technically a net importer of refined oil products, if crude oil and gas are included, Malaysia remains a net exporter, indeed the only one in Asia.

– Every US$10 drop in global oil prices translates into 0.2% decline in Malaysia’s trade balance…. Since oil prices are down over US$35 from their US$105 peak earlier this year, that’s 0.8% of the gross domestic product (GDP) decline in trade balance just on crude oil. “If you add in gas, petroleum products, and all other things you are probably looking at 1.2% or so GDP decline in trade balance…”

–  if oil prices hover around US$75 per barrel, Petronas payments to the Malaysian government could be 37% lower next year at RM43 billion…. about RM25 billion (or 2.3% of GDP) lower than the projected payment this year of RM68 billion…

–  a RM25 billion fall in Petronas contributions to government coffers is larger than the total fiscal savings from the recent scrapping of fuel subsidies, which (is estimated at) at about RM18 billion (or 1.7% of GDP).

– Malaysia is now likely to miss its original 3% fiscal deficit target for next year… “We now expect fiscal deficit to come in at about 3.8% of GDP in 2015, widening from 3.5% of GDP this year” …

READ MORE:  Najib's Budget 2018

– Oil-related revenue contributes close to 30% of annual government revenues….

– Falling oil prices could also hurt the ringgit.

Malaysian Ringgit to Singapore Dollar Exchange Rate Graph - Dec 3, 2004 to Nov 26, 2014

– “In an environment where the US Federal Reserve (Fed) is looking to normalise interest rates and the US dollar is strengthening, things could be bad for flows that are interest-rate sensitive,” the Nomura economist said. “Falling oil prices mean Malaysia’s current account surplus narrows further, and therefore there is a smaller buffer to counter capital outflows particularly if the Fed moves earlier than anticipated.”

– Weaker yen and quantitative easing in Japan are also playing major roles in Malaysia because Japan is a big importer of Malaysian commodities as well as other goods. Weaker yen makes it more expensive for Japan to buy those goods so there would be more pressure on the ringgit,” he argued.

– Nomura is keeping GDP growth target around 5% for 2015 though Paracuelles said the risks are to the downside. “There is also the issue of slowdown in China, and a generally weaker global economy, and as a fairly open, export-oriented economy Malaysia is more vulnerable than many of its counterparts.”

Strange, isn’t it? Price goes up, we lose. Price goes down, government (i.e. public) loses. Heads they win, tails we lose.

Thanks to blog visitor Simon for the link.

 

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19 Comments on "Oil price plunge: Heads they win; tails we lose"

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moot
moot

Keynesian economics simpleton multiplier effect and planned economic go bankrupt, what do you expect? Miracles?

By the way, the untold story of ringgits going down has nothing to do with low oil price. Basic economy : if you don’t stop the stupid keynesian economics money printing dogma, a legal tender will never falls against foreign currency.

Shakirin AlIkram
Are we the Rakyat supposed to be happy with this bleak scenario. I believe Najib’s Government is on the brink of Collapse. And well he deserve it for lying and cheating and embezzlement akin to the Arabs in the collapsed MidEast governments of Tunisia, Libya and Egypt. Unfortunately. Malaysians by majority are inert masses. They will accept it as Divine Will not bring the Change we sorely need. And the Government can act with impunity to further burden the 30 million majority compared to the Useless, immoral UMNO leaders especially PM Najib pandering to his ugly and rotten to the… Read more »
Pritam
Pritam

Were the plummeting prices of oil, palm oil and weakening of the ringgit just overreactions?
Or is it the beginning of a financial and economic nightmare for Malaysia which is trying to keep afloat to service its tremendously high federal debts of between RM568.9 billion and RM800 billion?

https://hornbillunleashed.wordpress.com/2014/12/04/66436/#more-66436

Pritam
Pritam

BN politicians usually walk free from any scandal. The RCI on Projek IC in Sabah is the latest case.

abb
abb
ananars, what a great bn govt. PKFZ, how much the govt gonna lose? thought the fiasco will be behind us and be the last. whats IMDB gonna lose? Who knows. well, i wont be surprise you be like the village … from kelantan that we are jealous of IMDB success that out of 3 years, IMDB reported profits for 2 years. and talking about price increases. TNB didnt raise the tariif? petrol is down rite by 4 cts recently? dumbo, its cheaper now in US than Malaysia, which is net exporter of oil. well, i can only give you credit… Read more »
Ananars
Ananars
Some of the speeches comes from small time delegates unlike Pakatan with its defacto leader Anwar that said the Chinese are stupid or from PAS leaders that said they wants hudud and an islamic state. Although some small UMNO delegates want vernacular school out, the head Najib said vernacular school shall continue as in the Constitution. Pakatan leaders like Anwar and a host others break gate and storm university campus including running the road and breaking the law. Do you see any BN leaders including Najib doing that. PKFZ still has its assets so is 1MDB. Everyday you will see… Read more »
J Thomas
J Thomas

PKFZ at least RM12 billion up in smoke and many trusted to care walk free from responsibilities eg Kong Chong Ha.

1MDB learns courts can never get hold of culprits so the cycle of greed/mismanagement continues …….

Ed G
Ed G
Just stumbled upon an article in The Sun (Nov 26, 2014) under the Citizen Nades weekly column entitled ‘RM12.5b and counting’ which provided the disturbing account of the attempts to bury the PKFZ fiasco with the dropping of a civil suit by PKA against KDSB (allegedly for double charging of RM720 million) being the latest move. The current chairman of PKA is none other than Tan Sri Kong Cho Ha, the former transport minister who was dumped by the voters in GE 13. He was also alleged to be one of the prime movers within the MCA during its leadership… Read more »
Ananars
Ananars
wow wow wow, Many thought that we have a good state govt. Yes Head or tail we lose. Its not about increasing of water tariff, assessment rate or stall rentals etc etc that have been increased by the CAT govt recently. Now there is something that is “`free all along“` will now be charged by the state govt to the people of Penang. There is a dialogue on Waste Generator Pay at Auditorium A, Paras 5, Komtar, Penang on 4-12-2014. Previously it was free when the dustbin van come and collect your sampah or when you disposed it into the… Read more »
iSupercally
iSupercally

Another burden to the poor by the CAT

gk ong
gk ong

Felda Global Ventures Holdings Bhd (FGVH) was the worst performer among plantation stocks in Bursa Malaysia in the last quarter on derivative contracts losses and exposure to risky trading instruments.

Shareholders of Petronas and FGVH should be worried right now. No Christmas cheer.

iSupercally
iSupercally

Head or tail whatsoever, the govt will fulfill its promise to the people. Last election Najib promise Han Chiang college university status. That promise has been fulfilled. TV 2 reported today that Han Chiang is now a university

gk ong
gk ong

Good time for Petronas to stop its F1 sponsorship, and to terminate all local motor Cub Prix tournaments in the coming years.

Will Dr M find another George Soros to blame?

Ananars
Ananars

Head or tail, most important we must be level head and have a stable govt and a constructive opposition, not one that incites tension, run the street or be instigated and taken in by the lies and deception of politicians in their lust for power or by US and Western countries out to stamp their influence

Ed G
Ed G

Malaysians, as a whole are quite level headed politically as the public protests are generally peaceful despite being provoked or roughed up by some thuggish groups who are against the theme or cause of the protests. Barring the instances where some thuggish self-proclaimed champions of some lofty issues who threatened to burn party buildings or (intimidate/harass) speakers at allotted public places, we can actually see more rowdy behaviours during local football matches.

Ananars
Ananars

What did you see when you have leaders of the opposition that break gates and barge into public universities, having an illegal organization with members that use violence. Did you see any difference from what you have describe or just in a state of self denial

eng hock
eng hock

90% of Malaysians now being over-reliant on BR1M once the BN gomen cutdown on payouts will have severe repercussions as the rakyat now expects Najib to deliver afterall his over-the-top promises (janji). If the rakyat feel the pinch, then sayonara to BN prelude to GE14.
BN overdependent on Petronas oil $, once suffocated by global economic terms, the BN folks can ‘rejuvenated’ fast enough to recover and hence OIL finally the one that snares to BeEnded.

Ananars
Ananars
When oil prices go up, the opposition will be so happy that high prices will make the people suffer and BN go bust. When prices go down they will say that the govt will is like kangkung and will have no money and the country will be bankrupt. They have been saying this for more than 10 years hoping that the country will go bust just in their lust for power without constructive ideas for the country. But the country is still strong even after the 1997 world financial crisis and when Anwar as finance minister (allegedly) mismanage the forex… Read more »
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