Wednesday, 17 December 2014

Oil Crisis and Falling Dollar

(sourced from www.currencyfundgroup.com)

In November, OPEC had a meeting and agreed to continue their output even as demand decreased. This inevitably meant oil prices dropping by 30% to 45% and closing on $50 per barrel.

This is scary for Malaysia as we are a oil producing country and this means a big loss for our government revenue. And what does that mean for Malaysians? Cut backs on government spending and a bleak economy unless something can be done quickly. Worse is that GST will be implemented next year in April so double whammy for all of us.

All this was a response by OPEC to the rise of shale oil production in the United States that is reducing their dependence on oil imports. Some say the move by OPEC was actually a concerted move to bankrupt Russia as they fear its aggressive expansion plans after witnessing whats happening in Ukraine.

Oil prices have tumbled before, and Malaysia has weathered the storm. But with the current government on a spending binge and no control in sight i fear our gross debt might just continue to rise.

Update: Outcomes and Repercussions
I'm going back to this posting above and recap on what has happened so far due to the drop in oil prices.

Cheaper Petrol for cars
After discontinuing subsidies, the govt has also reduced oil prices with RON 95 petrol will be priced at RM1.91 a litre (-35 sen), RON 97 petrol at RM2.11 a litre (-35 sen) and diesel at RM1.93 a litre (-30 sen).

Drop in local currency
At the start of December our local currency was closing around RM3.5 to USD1. But now the exchange rate has steadily dropped with more capital flight. As of this update our ringgit it now at RM3.61 to USD1.

Malaysian Govt Cuts Spending
The govt had to revise its RM273.9 billion dollar budget and cut spending, specifically in operating expenditure. To do this they suspended national service and reduced alot of 'operations procurement' which means less corruption (hopefully)

Delay in Electricity Tariffs
There was due to be a 6-month hike in prices for electricity and natural gas but now it is postponed by 1 year.