• Office of YB Wong Chen

Historic low WTI crude price, what does it mean for Malaysia’s oil and gas industry and ultimately o

WTI crude price dropped into negative territory, hitting an all time historic low of $USD-37. An insane negative 37 dollars. The insanity is driven by a meltdown of May contracts facing severe storage shortage.

So everyone is now looking at the June futures trade price for WTI crude which is currently hovering around USD20. Brent crude price, which is a better global price indicator, is currently holding at USD25. Malaysia Tapis oil price is currently at USD27.

What does it mean to Malaysia, an oil and gas producer and exporter?

Clearly, fiscal problems ahead. The norm average price in the past decade has been around USD55 per barrel. For budget 2020 we used USD62 per barrel. I have written and spoken about this before. The oil and gas sector contributes two major sources of revenue for the federal government.

One source of revenue is PITA, the petroleum income tax imposed on all oil companies. PITA contributes on average about RM17 billion a year. At current prices, profitability of oil and gas companies are now being questioned.

The second major income, comes from Petronas profits which is normally around RM50 billion a year. Note that not all Petronas profits are declared as dividends to government. I am assuming Petronas will have to declare most if not full dividend in view of the Covid-19 crisis.

So what we have is about RM67 billion of government revenue under threat from lower oil prices. As an example, if we take a conservative 30% discount on both revenue streams for the entire financial year, we will be looking at RM20 billion shortfall in revenues.

A complete recalibration/revamp of the federal budget will need to be debated and sorted in Parliament. The sooner the better. It doesn’t help that Petronas only reports to the prime minister, not even to Parliament.

Hence, I reiterate my position that Parliament must convene as soon as possible to debate policies and budget. The first debate day proposed by this government on the 13th of July is not acceptable.

And we have not even touched on the pressures facing personal income tax and corporate income tax yet.