PETALING JAYA, April 25 — MIDF Amanah Investment Bank (MIDF Research) forecast the government’s petroleum revenue to be at RM72.1 billion in 2022, thanks to soaring global commodity prices.

In a research note today, the investment bank opined that as commodity prices stay elevated, there would be a more meaningful translation into higher mining output and sales. 

"Global economies, as well as Malaysia’s economy, are adapting to the new normal, easing input bottlenecks and lesser supply disruptions,” it added.

MIDF Research said the government had presented the Budget 2022 on the assumption that the average Brent crude oil price would be at US$66 per barrel this year.

Based on this projection, it said the government’s oil-related revenue is set to rise to RM44 billion, constituting close to 20 per cent of total revenue. 

It noted that oil-related revenue had not moved in tandem with oil price trends in the past four years due to the cancellation of the Goods and Services Tax, the Covid-19 pandemic and supply disruptions.

"Even though Brent oil price had almost doubled from the initial projection of US$42 per barrel to US$70 per barrel in 2021, oil-related revenue did not increase much due to the pandemic and supply disruptions,” the research house added.

On fuel subsidy, MIDF Research estimates that the government needs to absorb approximately 55 per cent margin of the estimated actual RON95 price of RM3.18 per litre, on the assumption that the oil price would be at US$110 per barrel and US dollar/ringgit averaging at RM4.09 in 2022.

Based on these forecast figures, the investment bank expects fuel subsidy costs to be between RM25 billion and RM30 billion this year.

Currently, the government has capped RON95 and diesel retail fuel prices at RM2.05 and RM2.15 per litre, respectively.

"If the government maintains the current capped fuel prices, where the fuel prices expand by only 1.1 per cent, this will push the inflation rate to 2.5 per cent, in line with the government’s target,” it said.

However, in a worst-case scenario where the government decides to adopt the floating price mechanism, the headline Consumer Price Index (CPI) inflation would spike to 6.8 per cent, it said, noting that free-floating retail fuel prices will have serious negative implications on Malaysia’s overall inflationary pressure.

"We estimate that status quo RON95 will send headline inflation to 2.9 per cent when food inflation rises by five per cent, and a 10 sen cut in RON95 would only bring down the inflation to 2.6 per cent with the food CPI at five per cent.

"If the global food supply remains limited, price growth for edibles and portable items would jump by 10 per cent, which may lead the overall inflationary pressure to reach 8.9 per cent.

"Nonetheless, a rise in food prices is inevitable due to the effects of the Russia-Ukraine war which pushed up global commodity prices and increased Malaysia’s food imports bills,” said MIDF Research.

 Crude oil prices unlikely to back down

MIDF Research opined that oil prices are unlikely to go down in the near term, and the market will see more contracts to feed the increasing post-pandemic demand for crude oil and natural gas, benefitting the local oil and gas players.

It expects the sector to continue outperforming, albeit cautiously as the magnitude of the impact of spiking commodity prices would primarily be determined by the types of products and services offered.

"Malaysia has been producing major petrochemical feedstocks at a similar pace with Brent crude prices, with gas-based feedstocks leading over liquids.

"As such, we reiterate our positive view on Petronas Chemicals for its resiliency in its operations in line with the movement of crude oil prices,” it added. — Bernama