Economist: Recalibrate 2019 Budget only if oil price hits US$30

A gas station worker pumps gas into a car at a gas station of the state oil company PDVSA in Caracas August 29, 2017. — Reuters pic
A gas station worker pumps gas into a car at a gas station of the state oil company PDVSA in Caracas August 29, 2017. — Reuters pic

KUALA LUMPUR, Dec 24 — The government still has room to breathe and will only recalibrate the 2019 Budget if Brent crude oil prices dip below US$30 (RM125) per barrel, suggests Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid.

“If we look back to 2016, Brent crude was at US$28 per barrel on Jan 20, 2016 when the 2016 Budget was recalibrated during the same month.

“Perhaps, Brent crude of below US$30 per barrel could be the yardstick before any move to alter the budget allocation,” he told Bernama.

Finance Minister Lim Guan Eng yesterday said the government would only recalibrate the 2019 Budget should the average crude oil price dip below US$50 per barrel, as the budget’s calculation was made based on a crude oil price of US$70 per barrel.

He said there was no necessity now to recalibrate the budget as the government was looking at average crude oil prices and not daily prices.

Mohd Afzanizam pointed out that the special dividend from Petronas, amounting to RM30 billion next year, would be borne from the national oil company’s reserves, which currently stood at RM402 billion as at Sept 30, 2018.

“In some sense, the special dividend will not be affected by the current oil prices as the source of repayment will come from past profits.

“Therefore, the government could still proceed with their spending plans under the Budget 2019 allocation,” he explained.

Earlier this morning, benchmark Brent crude eased 0.22 per cent to US$53.98 per barrel at one time.

He said while there is always a possibility for the oil price to dip further, the oil and gas industry is not experiencing excess capacity and a correction in oil prices is very healthy as it will reflect the current state of its business.

“We can see the number of oil rigs is rising at only a very gradual pace and at the same time, the average day rate for oil rigs is still below the 2014 level.

“So the cost of production is quite low among the players,” he said, adding the financial or corporate restructuring enacted over the past few years would mean that the O&G companies’ financial position is in much better shape now.

To recap, the then-Barisan Nasional administration had revised the 2016 Budget to optimise the country’s development and operational expenditures amidst falling oil prices and slower economic growth.

The Budget was calculated based on a crude oil price of US$48 per barrel, but unfortunately, it has fallen to US$30 per barrel. — Bernama

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