Higher oil prices bode well for ringgit


CRUDE oil prices remain robust despite the recent negative newsflow and are expected to go higher with the Brent crude oil contract set to rally towards US$70 (RM287) per barrel, helping strengthen the ringgit in the process.

Oanda Asia-Pacific Pte Ltd senior market analyst Jeffrey Halley told The Malaysian Reserve (TMR) that the Brent contract’s move through monthly resistance at US$68 last week is signalling Brent’s directional move higher has resumed.

“OPEC+ production increases and the India situation appears to be priced in, with international markets more focused on the US and China expansion, as well as the start of the Northern hemisphere summer, increasing consumption. Brent crude should move to US$70 initially, followed by US$72 a barrel,” he said.

SPI Asset Management managing partner Stephen Innes echoed the same sentiment, saying crude oil is being supported by pent-up demand boom coalescing around pent-up travel demand by planes, trains and automobiles during May Golden week in China and a huge US summer driving season.

“I still see Brent trading a bit higher, potentially reaching US$73 per barrel during the summer peak, but expect OPEC+ to produce more barrels into this demand, limiting oil price top side ambitions,” he told TMR.

StashAway Malaysia Sdn Bhd country manager Wong Wai Ken said higher oil prices bode well for the ringgit considering crude and refined petroleum products make up 7% of Malaysia’s exports.

The price is also above the government’s assumption of US$42 per barrel for 2021, which enables more public spending.

“As far as Malaysian government revenues go, the present price is far above the government’s target of US$45-US$55 a barrel. The Petroliam Nasional Bhd’s dividend, therefore, should logically rise from the budgeted RM18 billion to something closer to the previous RM34 billion if oil prices remain at these levels.

“It is not a straight-line equation, but the dividend should trend towards the RM25 billion-RM30 billion level if things remain as they are for the remainder of the year,” added Halley.