KUALA LUMPUR (March 13): The RON95 petrol could revert to its previous subsidised level of RM2.05 per litre if global oil prices remain elevated, according to Hong Leong Investment Bank (HLIB).

HLIB estimated that every US$10 (RM39.28) per barrel increase in oil prices would push up government spending on fuel subsidies by about RM3.4 billion for RON95 petrol and RM800 million for diesel. 

It added that the overall fiscal effect would still be negative despite the government receiving additional revenue from higher oil prices. 

At the time of writing on Friday, Brent crude was trading just over US$100, according to Bloomberg data.

HLIB cited Prime Minister Anwar Ibrahim as saying that the Malaysian government may struggle to sustain the current subsidised price of RM1.99 per litre under the Budi95 scheme for more than two months.

"As a result, we think the government may revert to the previous subsidised RON95 price of RM2.05 per litre. If implemented, this adjustment could result in a direct increase in Malaysia’s consumer price index of approximately 0.1 percentage point," the house said in a note on Friday.

Against this backdrop, HLIB forecasts the overnight policy rate to be maintained at 2.75% by Bank Negara Malaysia.

The research house said while the International Energy Agency’s decision to release 400 million barrels from emergency reserves to help ease short-term supply pressures caused by the war in the Middle East, it is unlikely to resolve underlying risks to global oil supply.

“While this provides a temporary buffer for global oil markets, a more sustainable solution would be the reopening of the Strait of Hormuz. Until that happens, we believe this may prompt oil prices to remain elevated,” said HLIB economists.

For Malaysia, the impact of higher oil prices has garnered mixed outcomes. The country remains one of the few in Asia with a net oil and gas trade surplus, supported largely by liquefied natural gas (LNG) exports. Higher LNG prices could translate into further support to the country’s trade position.

However, despite this potential buffer, HLIB noted that Malaysia’s crude oil trade position has weakened in recent years due to a decline in domestic production and rising imports to support refinery operations at the Pengerang Integrated Complex in Johor.

A large portion of Malaysia’s crude imports come from the Middle East, particularly Saudi Arabia and the United Arab Emirates, which leaves the country exposed to higher import costs when global oil prices increase.

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