Ringgit falls as oil slumps due to Suez Canal blockage


THE pressure on the ringgit is set to sustain following the slump in the crude oil prices due to the blockage in the Suez Canal.

The greenback rose to a four-month high of 4.144 against the local unit as the lockdowns across many countries due to the spread of Covid-19 pandemic reignited fears of weaker consumption, trade and investments.

Bank Islam Malaysia Bhd economist Adam Mohamed Rahim said ringgit could sustain within the 4.13-4.14 range this week, partly given the situation at Suez Canal and strong correlation with crude oil prices.

“Work to refloat the container ship that is stuck in Suez Canal, which is a key trade route for crude flows to Asia, was suspended until Thursday morning in Egypt.

“The best chance of freeing the vessel may not come until Sunday or Monday. This has raised concerns of a bottleneck for oil tankers transporting oil from the West to the East and vice versa,” he said.

It is estimated that 12% of the global trade is traversing between the Mediterranean and the Red Sea through the Suez Canal as the channel provides the shortest sea link between Asia and Europe.

Oil prices fell yesterday with Brent crude futures contract slipping by US$1.07 (RM4.45) or 1.66% to US$63.34 per barrel, while the West Texas Intermediate crude contract fell US$1.24 or 2.03% to US$59.94 a barrel.

Oil tankers are now left with two options, which is to sit and wait at the mouth of the canal or travel thousands of kilometres around South Africa’s Cape of Good Hope.

“The latter option would delay cargo by about a week,” Adam said.

AxiCorp Financial Services Pte Ltd chief market strategist Stephen Innes said the resilient US dollar is likely to be the biggest obstacle for the local currency as crude price falls.

He added that the pressure on the local currency is also expected to be contributed by the cloudy prospect of the tourism industry’s recovery as travel and people’s movement are still being curbed. “While the oil prices could stem the ringgit’s bleeding, it might not be enough to trigger a bullish revival.

“The reimposition of lockdowns in Europe and the resurgence of Covid-19 in hotspots around the world do little to improve the prospect of regional travel and leisure sectors.

“Now, the glimmer of hope expected for summer travel would be questionable, given the new global spread and concerns over the new variant,” he said.