Oil shockwave

INVESTORS SPOOKED: Analysts see silver lining as plummeting price rock ringgit, local stocks

THE ringgit and local stocks took a beating yesterday as plummeting oil prices continued to spook investors, with the benchmark Brent crude for January sinking to an October 2009 low of US$67.53 (RM232).

The United States benchmark West Texas Intermediate for delivery in January hit US$63.72 a barrel — the lowest level since July 2009.

Bursa Malaysia, along with other Asian bourses, felt the tremors of the price drop, with oil and gas stocks taking a beating along with banking and plantation stocks.

The benchmark FTSE Bursa Malaysia KLCI contracted 42.62 points to close at 1,778.27, the biggest decline in almost 23 months.

The worst performer was Sapurakencana Petroleum, whose share price plunged 10 per cent.

Meanwhile, the ringgit slipped to a five-year low against the US dollar yesterday, recording a 2.5 per cent drop in two days, the biggest two-day decline since the 1997-98 Asian financial crisis.

As at 5pm yesterday, it was quoted at 3.4320/3350 against the US dollar, compared with 3.3450/3480 last Friday.

But near-term momentum for the local currency remains bullish, according to Maybank FX Research forex strategist Saktiandi Supaat.

“The ringgit remains bullish with a support at 3.38 and first resistance at 3.45, which, if broken, could proceed to test 3.47,” he said.

He said if the oil prices were to move lower or remain soft and with uneven global growth recovery, the ringgit would weaken beyond yesterday’s low of 3.4392.

National oil company Petroliam Nasional Bhd’s (Petronas) announcement last Friday of a cut in capital expenditure also weighed on the currency, with its cascading effects on fiscal balance a likely negative, he added.

But Petronas president Tan Sri Shamsul Azhar Abbas expects prices to stay around US$70-75 per barrel, based on the quoted Brent crude oil prices.

Despite weaker oil prices, CIMB Investment Bank economist Julia Goh remains confident the government is on track to meet its fiscal deficit target of three per cent of gross domestic product (GDP) next year.

While every US$10 decline in oil prices may cause a RM2 billion to RM3 billion drop in revenue, the country would also gain RM5 billion in savings.

“During this environment of soft prices, the consumers benefit from lower pump prices, which will also drive consumption,” she said.

For exporters, they stand to benefit from the strength of the US dollar in their earnings and repatriation of profits.

Bank of America Merrill Lynch’s Dr Chua Hak Bin said lower oil prices would lead to cheaper retail fuel prices in the coming months, easing some inflation pressure.

But he warned that headline inflation would turn higher from April with the introduction of the six per cent Goods and Services Tax.

He expected fiscal deficit, despite the scrapping of subsidies, to widen from 3.5 per cent of GDP this year to about 3.8 per cent next year.

On the risk of oil prices trending below the US$65 per barrel threshold, which would threaten the chances of meeting the government’s fiscal target, Goh said the government could cut back on its operating or development expenditure, or look for additional sources of revenue.