One common factor said to be affecting Ringgit tremendously is the oil price. This is because with low oil prices, the revenues of the government would reduce and this meant a higher risk and thus contributing to a lower Ringgit versus the US$. Well, at least there is some good news for oil price, if the analysis by Barclay analysts. They said that Brent prices would rise to US$63 a barrel in 2016, US$65 in 2017, US$74 in 2018 and US$83 in 2019, before reaching US$85 in 2020. Of course this is just their analysis because even when we google for oil price news today, there are also many reports saying that due to the demand which is not going to rise faster than the current huge stockpiles and production of oil, prices will stay at current low levels for a long time.
On their low-demand scenario, the forecast is US$75 a barrel while on the high-demand scenario, it may hit US$100 a barrel. Current price for Brent is around US$49.50 a barrel. Their argument for this is simple. With current low prices, energy companies would not be trying to produce more oil for fear of losing money. Besides, the capital expenditure in the oil industry is still falling and no new projects are coming in to replace the fall. As usual, once it is clear that supply is down due to production, the potential supply crunch would start to show. With this, it meant that excess stocks may be used up by 2016 and 2017.
For Malaysia’s sake, I also hope they are right. I am however of the opinion that OPEC is not likely to do nothing if the oil price continues to decline. In terms of current oil price levels, I read somewhere that for some of these desert based oil production, the cost of production is still lower than the oil price. Besides, there are already some predictions about some of these oil producing countries going bankrupt in a few years time without a higher oil price. I think just this fear of bankruptcy may ensure oil prices not stay low for long. I know, if oil prices rise then it will affect petrol prices. However, with the current oil price, it is giving lots of pressure to the Ringgit besides just the expectations of Federal Reserves’ actions in the near future. Let’s see what happens next year then, Barclay’s.
written on 26 Oct 2015
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