KUALA LUMPUR, Jan 22 ― Economists and industry observers have supported Putrajaya’s move to pegging its revised Budget 2015 to an optimistic oil price forecast of US$55 (RM198.5) per barrel, saying it was not an unreasonable estimate.

Although acknowledging that global prices have already dropped below US$50 per barrel instead of recovering, the analysts said predicting an annual price would be “inherently difficult” and agreed that US$55 is a realistic forecast.

“According to the most recent figures from oil futures markets, prices are expected to average about US$54 per barrel in 2015. The assumption (of US$55 per barrel), therefore, does seem realistic,” said World Bank’s senior economist for Malaysia Dr Frederico Gil Sander.

“Nevertheless, it is important for the government to be prepared in case of both higher and lower prices of oil.”

Liaw Thong Jung, an oil and gas analyst with Maybank Investment Bank (IB) Bhd, insisted that the forecast price of US$55 per barrel is “realistic and practical for now” as the average price for the year to date is US$49 per barrel, although it is still subject to market adjustments.

Liaw also explained through an email interview that Maybank IB’s economics team estimated that every US$10-per-barrel change in crude oil price would result in a six sen change in the ringgit-to-US dollar exchange rate.

But Liaw was unable to say whether Putrajaya would need to revise its budget should oil prices change again, confirming that there was no projection available on how any sharp turns in prices of the commodity would affect government revenue.

“HSBC's Natural Resources and Energy research team is expecting Brent to average US$62.50 this year, so relative to these projections, the government's revised budget assumption for oil at US$55 per barrel does not appear unreasonable,” HSBC’s Asean economist Lim Su Sian said.

Quoting the research team, Lim also suggested that that oil prices might climb in the second half of 2015, due to seasonal strengthening in oil demand.

Putrajaya’s revision of Budget 2015 on Tuesday was primarily motivated by a revenue shortfall of RM13.8 billion based on the government’s forecast price of US$55 per barrel this year.

Prime Minister Datuk Seri Najib Razak said during his announcement that Budget 2015 that was drawn up when crude oil price was hovering above US$110 per barrel was no longer realistic as oil price has fallen below US$50 per barrel.

As a crude oil exporter, Malaysia is highly dependent on petroleum income. Its oil-related revenue totalled RM63 billion in 2013, accounting for 29.5 per cent of total government income.

Opposition leaders, however, had attacked Putrajaya for pegging the revised budget to such an overoptimistic forecast of oil prices, with one MP claiming the choice was not only “cosmetic and unrealistic” but in denial of current market forces and trends.

“Setting the crude oil price at US$55 per barrel gives Najib the comfort of changing nothing substantial in Budget 2015 yet still claiming that budget deficit would only increase from 3 percent to 3.2 per cent after revision.

“Such public relation exercise fools no one. Every discerning observer knows that crude oil price is more likely to be less than US$55 per barrel than otherwise,” DAP’s Kluang MP Liew Chin Tong said in a statement.

Liew had suggested instead that Putrajaya come up with different possible scenarios should oil prices drop to either US$40, US$30 or even US$20 per barrel.

Business new agency Bloomberg reported yesterday that oil chalked losses below US$50 a barrel as China’s economic growth failed to spur confidence demand will be enough to eliminate a global supply glut.

Oil slid almost 50 per cent last year as the US pumped at the fastest pace in more than three decades and the Organisation of Petroleum Exporting Countries resisted calls to cut output.