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Watch the oil price, it definitely concerns us too.

Watch the oil price, it definitely concerns us too.

The topic of petrol price is always a popular one. For the past one week, the discussion has been mostly centred on who will get the subsidy and who would not based on Budget 2019 announcement. My personal take is to make things simple. Here’s that earlier article Well, do we know what’s happening in the world of oil price? Well, it has fallen to a multi-month low just last week. The reasons include an increase in the global supply and the impact on fuel demand due to lower economic growth and trade disputes. (Trade disputes here definitely meant the largest and the second largest economies in the world; America and China)  As for the world growth, this was what Tao Zhang, deputy managing director at the International Monetary Fund said, “If global supply chains are forced to adjust as a result of the ongoing trade tensions between the U.S. and China, it could cost the world economy about 1 percent of its GDP by next year.” Article in CNBC here. 

As for the oil price, Article in NST here. The benchmark Brent crude has fallen below U$70 a barrel for the first time since April 2018. This is down by more than 18 percent since reaching four-year highs at the beginning of October. It is now in a “bear market” territory, borrowing a definition used in stock markets. Oil peaked in October on concerns that U.S. sanctions on Iran that came into force this week would deprive the oil market of substantial volumes of crude, draining inventories and bringing shortages in some regions. However, other big producers such as Saudi Arabia, Russia and shale companies in the United States, have increased output steadily, more than compensating for lost Iranian barrels. Currently, the United States, Russia and Saudi Arabia are pumping at or near record highs, producing more than 33 million barrels per day (bpd), a third of the world’s oil. Article in NST here.

Budget 2019 was based on the assumption of oil price at US$70 a barrel. In effect, if it maintains above US$70 a barrel, we are doing okay. If it’s below, then there are some side effects. Petronas’s profits will be lower when the oil price is low. The budget deficit for 2019 which was expected will also rise. This will affect sentiment in the market even if some companies will profit from a lower oil price scenario,for example airlines. (Hint… Hint… buy some airline stocks?) When sentiment is negative we will see stock market and property market also subdued too. Hopefully, oil price does not fluctuate too much whether too low or too high. By the way, too low is NOT good too as it meant world growth is slowing, thus demand for oil is reducing too. Too high and it may cause inflation and cripple some countries’ economic growth. Happy following.

written on 12 Nov 2018

Next suggested article:  Falling oil prices and the actions fo Warren Buffett

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