Malaysia in advantageous position among Asean peers


MALAYSIA, as a net oil and gas (O&G) exporter, is placed in an advantageous position relative to its Asean peers in a rising oil price environment, according to CGS-CIMB Research.

Economists Lim Yee Ping and Terence Lee noted that the largest chunk of the country’s energy trade surplus was contributed by liquefied natural gas (LNG) at RM21.5 billion in the first eight months of 2021, followed by crude petroleum (RM3.7 billion) and a rare surplus in petroleum products (RM1.6 billion).

“Assuming LNG moves in lockstep with oil prices, every US$10 (RM41.70)-per-barrel increase in oil price improves Malaysia’s current account position by up to 0.4% of GDP.

“As net O&G importers, Indonesia, Singapore and Thailand will incur higher O&G import bills,” they said in a note yesterday.

For Malaysia, CGS-CIMB has estimated additional government revenue of RM430 million for every US$1-per-barrel increase in crude oil price after adjusting for the weaker ringgit versus the US dollar, higher than the official guidance of RM300 million.

The economists added that the government starts incurring fuel subsidies when oil price hits US$60 per barrel, with additional fuel subsidies estimated at RM650m per US$1-barrel crude oil price hike.

They said globally, an extended oil price shock represents a windfall for producers and a tax on consumers but the distributional effects are dependent on fiscal contribution from the energy sector and energy subsidies at the expense of government finances.

They also noted that governments in Malaysia, Indonesia and Thailand have exerted some control over fixing retail prices for fuel, cooking gas, or electricity tariffs, thereby limiting the pass-through of higher energy prices to consumers.

“Malaysia imposes a ceiling on retail fuel price — RM2.05 per litre for RON95 petrol and RM2.15 per litre for diesel — and subsidises the difference, while Thailand recently announced a cap on diesel pump price at 30 baht (RM3.75) per litre and finances subsidies with its 10-billion-baht Oil Fuel Fund.

“Hence, the blanket subsidy for RON95 petrol and diesel, exposes Malaysia’s fiscal balance to a deterioration of RM2.2 billion or 0.1% of GDP per US$10-per-barrel increase in oil price above US$60 per barrel,” they said.

Meanwhile, CGS-CIMB also noted that Brent/West Texas Intermediate crude oil prices has surpassed US$80 per barrel, rising by more than 60% year-to-date due to supply constraints and surging demand amid economic re-opening.

Varying degrees of government intervention will continue to soften the pass-through of higher energy prices to inflation in Malaysia, Indonesia and Thailand.