KUALA LUMPUR: Malaysia’s pledge to cut oil production by 136,000 barrels per day (bpd) in May and June is bigger than expected.
Public Investment Bank Bhd said this was almost seven to nine-fold of the country’s previous cuts of about 15,000 to 20,000 bpd.
This, PublicInvest added, might hurt the mining and quarrying sector sectors especially when the cut for OPEC+ hits it tipping point in May and June.
“This may hit the mining sector in the Industrial Production Index and mining and quarrying sector in gross domestic product (GDP) output especially in the second quarter of the year when the cut for OPEC+ hits its tipping point,” the firm said today.
The government announced on Wednesday that the output cut was in line with the recent decision by OPEC+.
It, however, did not reveal the quantum of cuts for the rest of the periods.
The OPEC+ grouping reached a landmark decision last Sunday to cut output by 9.7 million bpd, or about 10 per cent of daily global oil production, in May and June to stabilise and support oil prices.
This will be followed by 8.0 million bpd cut from July till December and 6.0 million bpd for 16 months from 2021.
This is not only OPEC+’s largest cut in history but also the longest time frame it has committed to.
PublicInvest said the decision by OPEC+ might only limit downside risks on oil prices but unlikely to trigger its rise given the widespread destruction Covid-19 had caused,
“Covid-19 has caused infections in about two million people in more than 200 countries and territories globally compared to 8,000 people in 26 countries for SARS in 2003.
“The fact that Covid-19 is still a big issue especially in advanced economies (the US, the UK, Eurozone), which constitute almost 50 per cent of global GDP, suggests a bearish sentiment on commodity prices especially oil.”
The firm said this was reflected by Brent crude prices which were trading at below US$30 barrel currently, hardly moving since the OPEC+ decision last Sunday.
“Oil prices may start to rebound once Covid-19 has reached its peak or at the very least from August onwards when the demand for oil is expected to surge,” it added.
Brent crude settled at US$27.69 a barrel on Wednesday, dropping US$1.91 or 6.45 per cent.
The US’ West Texas Intermediate crude ended at US$19.87 a barrel, shedding 24 cents or 1.19 per cent, for its lowest close since February 2002.
ends