KUALA LUMPUR – Malaysia expected to record higher-than-anticipated petroleum-related revenue this year due to the upward trend of global oil prices.
MIDF Amanah Investment Bank Bhd stated in a research note that the revenue could amount to RM73.7 billion.
The note reported that the National Budget 2022 was presented under the assumption that the average Brent crude oil prices would be at US$66 per barrel in 2022.
On the other hand, subsidies for fuel are set to increase as well, due to the government maintaining the retail fuel prices for RON95 and diesel at RM2.05 and RM2.15 per litre respectively.
“We estimate that actual prices for RON95 could reach over RM4 as Brent oil prices top US$100 per barrel,” the note added.
Using an example, MIDF Amanah explained that the average RON95 prices would be roughly RM4.77 per litre during the time Brent oil was priced at US$122.80 per barrel in May this year.
“Our in-house projection for Brent crude oil price is US$112.49 per barrel for 2022 and US$120.30 per barrel for 2023. Using the floating market mechanism, RON95 and diesel would be at RM4.37 and RM4.67 per litre for both years,” it added.
Under that scenario, the hypothesis would be that the government might gradually eliminate the fuel subsidy system.
It could be possible that the gradual subsidy reduction would enable customers and businesses to gradually adjust and adapt as the retail fuel prices for RON95 will increase by 15 cents monthly from July 2022 till December of 2023.
The normalisation of RON95 prices would complete after 18 months, the note said.
“The advantage of the free floating price mechanism is more visible in the change of inflation especially during the downtrend that 2020 experienced.
MIDF Amanah said that while the free floating price mechanism is more efficient, it does expose Malaysia to inflationary pressures during the uptrend cycle.
Looking ahead, the bank stated that the upward trajectory of prices for food and petroleum would be the main predictors for Malaysia’s overall inflationary pressures, especially during the current climate of elevated global commodity prices and further supply chain disruptions.
As for other consumer price index (CPI) components, the statement said that a less volatile price change is expected for 2023 as the bank believes that price changes will follow a similar trend as during the pre-pandemic period.
Using the assumption that the price of RON95 would be up by 15cents to RM2.20 per litre on July 1, 2022, it is predicted that fuel inflation would surge to 10.7% year-on-year and headline inflation would increase to 3.7% year-on-year.
“With this gradual approach, the overall inflation rate will remain on an upward trend and linger above 8% in the second half of next year,” the note stated.
Additionally, the price growth is expected to reach its peak of 8.7% year-on-year in June of 2023.
As for headline inflation for this year and 2023, the bank expects a rate of 3.6% and 7.9% respectively.
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