This document discusses the impacts of the recent collapse in global crude oil prices on firms' resource allocation and production decisions in Malaysia. It outlines how the decline in oil prices has led to a reduction in government revenue from taxes and dividends from Petronas, a weakening of the Malaysian ringgit currency, and a decline in the stock market, particularly for oil and gas companies. It explores how firms in the oil and gas industry and other sectors have responded through job cuts, salary reductions, and decreased capital expenditures in order to cut costs in the low price environment.
The document provides an overview of changes in crude oil prices from 1986 to 2018 and the impact on the Indian economy. It discusses fluctuations in prices between 1986 and 2009, with prices generally falling until the mid-2000s due to factors like OPEC production cuts. Prices rose significantly in the late 2000s before collapsing in 2014-2016. More recently prices have been steadily increasing since 2016. The document also examines how rising crude oil prices impact India through higher import bills, inflation, the fiscal deficit, the rupee, and corporate profit margins. Key sectors like energy, transportation, and manufacturing are affected.
The document discusses the relationship between crude oil prices, the rupee-dollar exchange rate, and geopolitical events. It notes that India imports over 3 million barrels of crude oil per day, accounting for over 50% of its exports. When crude oil futures prices increase, it drives up imports and the demand for dollars, putting pressure on the rupee to depreciate against the dollar. Geopolitical events that disrupt global oil supply can also impact crude oil prices by creating uncertainty about future availability, leading to higher price volatility in the short term due to inelastic supply and demand.
1) Real GDP growth in Kuwait slowed to an estimated 1.3% in 2014 due to flat hydrocarbon production and lower non-hydrocarbon investment.
2) Inflation increased to 2.9% in 2014 as population growth pushed up housing rents and demand for goods.
3) The current account surplus narrowed to an estimated 35.5% of GDP in 2014, reflecting lower oil export receipts and rising imports on domestic demand.
Forecasting the Causal Relationship between Oil Prices and Exchange Rate in N...iosrjce
This study empirically forecasted the causal relationship between oil prices and exchange rate in
Nigeria using data for 45 years (1970 - 2014). The data which is purely secondary data was sourced through
the Central Bank of Nigeria Statistical Bulletin for various years. The study modified the Sibanda and Mlambo
(2014)’s model to estimate the relationship and long-run effect of oil prices and exchange rates in Nigeria. With
the Durbin-Watson statistic value that there is no autocorrelation in the model, t-test statistic was used to test
the hypothesis that “there is no significant relationship between oil prices and exchange rate in Nigeria”, using
the e-view statistical software. The empirical findings indicate that a unit increase in oil price will lead to
44.91% increases in exchange rate in Nigeria. This implies that oil prices significantly influence exchange rate
in Nigeria, with the t-statistic P-value (0.0000) and table value (1.671) at 5% level of significance. The study
then recommended that exchange rate management policy makers should ensure that the oil price changes are
included in exchange rate management in Nigeria
The document summarizes the findings of a policy study on the impacts of rising oil prices on developing countries and implications for achieving the Millennium Development Goals. Key findings include: 1) oil price increases have had relatively moderate macroeconomic impacts so far but future impacts are uncertain and risks are tilted upward; 2) impacts vary significantly across regions and countries depending on their energy and economic profiles; 3) at the national level in India, impacts have been modest on GDP but inflation has increased moderately and trade deficits have risen; 4) however, sectoral and household impacts have been more significant through higher transportation, fertilizer and energy costs negatively impacting poor communities. The study calls for further research and consultation to improve assessments.
Oil prices are falling due to increased global supply outpacing demand, as well as increased production from countries like the US, Libya, and OPEC members refusing to cut production. Lower oil prices benefit economies that are net oil importers, like the US, India, and parts of Europe, but hurt exporters like Russia, Iran, and Venezuela. In India, falling prices reduce subsidy costs for the government, but also lower inflation and transportation costs, benefitting consumers.
Impact of crude oil prices on Pakistan economy 2015UmerMukhtarAhmed
When oil and shale boom hit the economy of oil exporting countries it also help the oil importing countries to save some money. This journal is written to show what happens with the Pakistan economy during toil boom.
International credit rating agencies like Fitch, S&P and Moody's have lowered their GDP growth projections for India in 2020 due to the negative economic impact of the COVID-19 pandemic. Fitch lowered its forecast from 5.6% to 5.1%, S&P from 5.7% to 5.2%, and Moody's from 5.4% to 5.3%. Domestic fuel demand in India has fallen over 10% in the first two weeks of March despite lower retail fuel prices, as restrictions to contain the virus spread have reduced travel and business activities. Meanwhile, India plans to take advantage of low crude oil prices to purchase oil worth Rs. 5,000 crore to fill strategic petroleum
The document provides an overview of changes in crude oil prices from 1986 to 2018 and the impact on the Indian economy. It discusses fluctuations in prices between 1986 and 2009, with prices generally falling until the mid-2000s due to factors like OPEC production cuts. Prices rose significantly in the late 2000s before collapsing in 2014-2016. More recently prices have been steadily increasing since 2016. The document also examines how rising crude oil prices impact India through higher import bills, inflation, the fiscal deficit, the rupee, and corporate profit margins. Key sectors like energy, transportation, and manufacturing are affected.
The document discusses the relationship between crude oil prices, the rupee-dollar exchange rate, and geopolitical events. It notes that India imports over 3 million barrels of crude oil per day, accounting for over 50% of its exports. When crude oil futures prices increase, it drives up imports and the demand for dollars, putting pressure on the rupee to depreciate against the dollar. Geopolitical events that disrupt global oil supply can also impact crude oil prices by creating uncertainty about future availability, leading to higher price volatility in the short term due to inelastic supply and demand.
1) Real GDP growth in Kuwait slowed to an estimated 1.3% in 2014 due to flat hydrocarbon production and lower non-hydrocarbon investment.
2) Inflation increased to 2.9% in 2014 as population growth pushed up housing rents and demand for goods.
3) The current account surplus narrowed to an estimated 35.5% of GDP in 2014, reflecting lower oil export receipts and rising imports on domestic demand.
Forecasting the Causal Relationship between Oil Prices and Exchange Rate in N...iosrjce
This study empirically forecasted the causal relationship between oil prices and exchange rate in
Nigeria using data for 45 years (1970 - 2014). The data which is purely secondary data was sourced through
the Central Bank of Nigeria Statistical Bulletin for various years. The study modified the Sibanda and Mlambo
(2014)’s model to estimate the relationship and long-run effect of oil prices and exchange rates in Nigeria. With
the Durbin-Watson statistic value that there is no autocorrelation in the model, t-test statistic was used to test
the hypothesis that “there is no significant relationship between oil prices and exchange rate in Nigeria”, using
the e-view statistical software. The empirical findings indicate that a unit increase in oil price will lead to
44.91% increases in exchange rate in Nigeria. This implies that oil prices significantly influence exchange rate
in Nigeria, with the t-statistic P-value (0.0000) and table value (1.671) at 5% level of significance. The study
then recommended that exchange rate management policy makers should ensure that the oil price changes are
included in exchange rate management in Nigeria
The document summarizes the findings of a policy study on the impacts of rising oil prices on developing countries and implications for achieving the Millennium Development Goals. Key findings include: 1) oil price increases have had relatively moderate macroeconomic impacts so far but future impacts are uncertain and risks are tilted upward; 2) impacts vary significantly across regions and countries depending on their energy and economic profiles; 3) at the national level in India, impacts have been modest on GDP but inflation has increased moderately and trade deficits have risen; 4) however, sectoral and household impacts have been more significant through higher transportation, fertilizer and energy costs negatively impacting poor communities. The study calls for further research and consultation to improve assessments.
Oil prices are falling due to increased global supply outpacing demand, as well as increased production from countries like the US, Libya, and OPEC members refusing to cut production. Lower oil prices benefit economies that are net oil importers, like the US, India, and parts of Europe, but hurt exporters like Russia, Iran, and Venezuela. In India, falling prices reduce subsidy costs for the government, but also lower inflation and transportation costs, benefitting consumers.
Impact of crude oil prices on Pakistan economy 2015UmerMukhtarAhmed
When oil and shale boom hit the economy of oil exporting countries it also help the oil importing countries to save some money. This journal is written to show what happens with the Pakistan economy during toil boom.
International credit rating agencies like Fitch, S&P and Moody's have lowered their GDP growth projections for India in 2020 due to the negative economic impact of the COVID-19 pandemic. Fitch lowered its forecast from 5.6% to 5.1%, S&P from 5.7% to 5.2%, and Moody's from 5.4% to 5.3%. Domestic fuel demand in India has fallen over 10% in the first two weeks of March despite lower retail fuel prices, as restrictions to contain the virus spread have reduced travel and business activities. Meanwhile, India plans to take advantage of low crude oil prices to purchase oil worth Rs. 5,000 crore to fill strategic petroleum
Lower crude oil prices are having widespread effects on the global economy. Prices have fallen 50% in recent months, benefitting oil importing countries but hurting exporters. Key reasons for the drop include low demand, high production from countries like Iraq and the US, and OPEC countries choosing not to cut supply. The fall in costs is leading to lower inflation and potential higher economic output in oil importing nations. However, it poses challenges for alternative energy and could delay investments to reduce dependence on oil. Share markets and some industries are also being negatively impacted by the continued decline in crude prices.
What the drop in oil prices means for the economy and office marketsJLL
Lower oil prices will negatively impact energy companies through reduced profit margins and capital spending cuts, leading to potential job losses. However, lower gas prices provide an economic stimulus for consumers and other industries through substantial savings. While energy-focused office markets may see weaker demand from energy companies scaling back, the broader economic benefits of low oil prices and diversifying economies will help offset negative impacts on office fundamentals. The long-term impact on office markets depends on the level of mergers and acquisitions in the energy sector and whether prices remain low, increasing vacant space through consolidation.
Impact of Oil Prices on the Economic Growth of PakistanMuhammad Sharjeel
We gathered data from different resources and then finalize our presentation. The intention to upload this file is to help those guys who need some guidelines for preparing presentation. :)
1. Global supply of oil has surpassed demand, resulting in falling prices. Increased output from Libya, the US shale oil boom, and tepid Asian demand have all contributed to higher supply.
2. Factors putting downward pressure on prices include a slowdown in the Eurozone economy and infighting within OPEC as members try to maintain market share.
3. High oil prices can lead to recessions as people spend only on necessities, hurting businesses and government finances through reduced growth and tax collection. Housing prices and overall economic activity also tend to suffer.
Oil has for decades been perceived as a necessary and highly addictive energy commodity, fueling the world economy. It is a crucial input good for most of the net-oil consumer countries, and it is an important source of revenue for the net-oil supplier countries. This means that any changes in the oil price will affect the entire world economy. Chloé Le Coq and Zorica Trkulja from Stockholm Institute of Transition Economics have written a policy brief that explains to what extent the oil-price fluctuations matter for the economy.
Read more: https://www.hhs.se/site
The document summarizes the recent decline in global crude oil prices from 2014 to 2015. It discusses several key reasons for the price decline, including increased US production, weaker demand from emerging markets, and Saudi Arabia's decision to maintain production levels despite proposals from OPEC members to cut supply. The summary also notes that lower oil prices benefit importers like India through reduced energy costs and trade deficits, but hurt exporters like Russia, Saudi Arabia, and Iran through lower revenues.
The document provides an economic analysis of Jordan covering recent developments from 2014-2015 and the macroeconomic outlook from 2015-2017. Recent key points include:
- Real GDP grew 3.1% in 2014 driven by mining, agriculture, and construction. Inflation moderated to 2.9% and turned negative in 2015.
- The current account deficit narrowed to 6.8% of GDP in 2014 as exports grew and grants increased. The fiscal deficit also narrowed to 2.3% of GDP due to fiscal consolidation and higher grants.
- International reserves increased to $14.1 billion as confidence in the Jordanian dinar grew. The banking sector saw deposits grow 9.7% while lending grew moderately at
- Russia's economy has stagnated since 2009 due to lower oil prices and Western sanctions. However, conservative macroeconomic policies have maintained stability.
- Putin has consolidated power through security services, state corporations, and cronies. His model relies on state capitalism and protectionism.
- The future outlook predicts continued economic stagnation, a further falling standard of living, and no reforms on the horizon. Putin's legitimacy depends on nationalism rather than improving lives, which is not sustainable long-term.
The document analyzes the dynamic relationship between global oil prices and the exchange rate of the Eswatini currency (SZL) against the US dollar using daily data from 2005 to 2018. It finds a unidirectional causal relationship from global oil prices to the SZL/USD exchange rate using the Toda-Yamamoto Granger causality test, indicating that global crude oil prices influence Eswatini's nominal exchange rate. The study recommends that Eswatini's exchange rate policy consider global oil price movements to avoid misalignment of its currency.
The document discusses global oil supply and demand dynamics that are contributing to low oil prices. On the supply side, US oil production has increased significantly due to improved shale extraction technologies. OPEC countries like Saudi Arabia continue to maintain high production levels of around 30 million barrels per day despite low prices. Global demand is also weak, with slower growth in major economies like China, Japan, India, and Germany. Low oil prices are negatively impacting US shale oil producers and forcing them to shut down rigs. However, oil refineries are benefiting from cheap crude and operating at high capacity levels. ExxonMobil is highlighted as a stock that may continue performing well since its refining business is helping to offset declines in
This document discusses the oil price and its impact. It begins by outlining the importance of oil and its many uses. It then discusses the economics of oil supply and demand and how they are inelastic, leading to large price fluctuations. It outlines some major oil price benchmarks and describes key oil producing and consuming countries. The document then analyzes how volatility in oil prices impacts both global and Indian economies. It concludes by discussing India's vision for increasing energy self-sufficiency and alternative energy sources that may play a larger role in the future.
An Evaluation of the Impact of Fluctuating Oil Revenue and the Performance of...Triple A Research Journal
This document summarizes a journal article that analyzes the impact of fluctuating oil revenue on Nigeria's economic performance from 1999-2016. It finds that oil price shocks, as a proxy for oil revenue, have a negative relationship with economic growth. A VAR test shows a unidirectional causality from oil revenue to GDP, indicating that oil export proceeds mainly drove growth during this period. The study concludes that Nigeria's overdependence on oil exports leaves its macroeconomic variables and policymaking vulnerable to instability from volatile oil prices. It recommends diversifying government revenue sources and reducing reliance on oil funds.
The document summarizes the key factors that caused the 2014 and 2015 oil price crashes. In 2014, high oil prices from 2010-2014 led to record investment in oil production but also a slowing of demand growth. This caused an imbalance of rising supply and slowing demand. Additionally, OPEC changed its strategy to maintain market share amid rising non-OPEC supply. In 2015, OPEC increased production further while long-lead projects also added supply, exacerbating the imbalance as inventories rose sharply. Lower prices have since spurred demand growth but supply is expected to face challenges to keep rising at the same pace due to investment cuts, meaning prices may need to rise to balance the market.
Oil prices falling and Their Impact on World and Indian EconomyRishabh Hurkat
The presentations is focused on Reason Behind the Fall in Global Crude Oil Prices.
It also inculcates various Charts and Data which are Up-to-date.
The Basic Reason is to understand the Effect on Global and Indian Economy.
Devaluation of Crude Oil and its Impact on World EconomyRushita Thakkar
Lower oil prices are having significant financial and economic impacts around the world. Oil exporting countries like Russia, Saudi Arabia, Venezuela, and Iran are facing budget deficits and recessions as their oil revenues decline. Meanwhile, oil importing countries benefit from reduced costs, which can help support growth, though some oil producing areas within these countries are struggling. The declines are largely due to increased supply from the US and lower global demand.
The document summarizes economic trends in Nigeria for March 2015. It notes that global growth is expected to be led by the US economy in 2015, but US consumer spending has slowed in early 2015, pointing to slower Q1 growth. Oil prices rose in February but most metals prices fell. In Nigeria, the Senate revised budget assumptions for 2015, lowering the oil benchmark price. The IMF commended Nigeria's economic diversification efforts but noted vulnerabilities remain. Nigeria's GDP growth declined to 5.94% in Q4 2014, led by the non-oil sector. Inflation rose in January while interest rates increased. The CBN devalued the naira and closed the official exchange rate window in February.
Cowry market review for 2015 and outlook for 2016Tobi Ajayi
The document provides a review of the Nigerian economy and outlook for 2016. In 2015, real GDP growth slowed in the first two quarters but picked up to 2.84% in Q3 as crude oil production increased under the new administration. However, lower global oil prices reduced oil revenues. Manufacturing was neutral with expansion in production and orders offset by weakened demand and employment contraction. Foreign exchange scarcity also negatively impacted trade. While inflation remained in single digits, the currency depreciated due to declining reserves.
Lower crude oil prices are having widespread effects on the global economy. Prices have fallen 50% in recent months, benefitting oil importing countries but hurting exporters. Key reasons for the drop include low demand, high production from countries like Iraq and the US, and OPEC countries choosing not to cut supply. The fall in costs is leading to lower inflation and potential higher economic output in oil importing nations. However, it poses challenges for alternative energy and could delay investments to reduce dependence on oil. Share markets and some industries are also being negatively impacted by the continued decline in crude prices.
What the drop in oil prices means for the economy and office marketsJLL
Lower oil prices will negatively impact energy companies through reduced profit margins and capital spending cuts, leading to potential job losses. However, lower gas prices provide an economic stimulus for consumers and other industries through substantial savings. While energy-focused office markets may see weaker demand from energy companies scaling back, the broader economic benefits of low oil prices and diversifying economies will help offset negative impacts on office fundamentals. The long-term impact on office markets depends on the level of mergers and acquisitions in the energy sector and whether prices remain low, increasing vacant space through consolidation.
Impact of Oil Prices on the Economic Growth of PakistanMuhammad Sharjeel
We gathered data from different resources and then finalize our presentation. The intention to upload this file is to help those guys who need some guidelines for preparing presentation. :)
1. Global supply of oil has surpassed demand, resulting in falling prices. Increased output from Libya, the US shale oil boom, and tepid Asian demand have all contributed to higher supply.
2. Factors putting downward pressure on prices include a slowdown in the Eurozone economy and infighting within OPEC as members try to maintain market share.
3. High oil prices can lead to recessions as people spend only on necessities, hurting businesses and government finances through reduced growth and tax collection. Housing prices and overall economic activity also tend to suffer.
Oil has for decades been perceived as a necessary and highly addictive energy commodity, fueling the world economy. It is a crucial input good for most of the net-oil consumer countries, and it is an important source of revenue for the net-oil supplier countries. This means that any changes in the oil price will affect the entire world economy. Chloé Le Coq and Zorica Trkulja from Stockholm Institute of Transition Economics have written a policy brief that explains to what extent the oil-price fluctuations matter for the economy.
Read more: https://www.hhs.se/site
The document summarizes the recent decline in global crude oil prices from 2014 to 2015. It discusses several key reasons for the price decline, including increased US production, weaker demand from emerging markets, and Saudi Arabia's decision to maintain production levels despite proposals from OPEC members to cut supply. The summary also notes that lower oil prices benefit importers like India through reduced energy costs and trade deficits, but hurt exporters like Russia, Saudi Arabia, and Iran through lower revenues.
The document provides an economic analysis of Jordan covering recent developments from 2014-2015 and the macroeconomic outlook from 2015-2017. Recent key points include:
- Real GDP grew 3.1% in 2014 driven by mining, agriculture, and construction. Inflation moderated to 2.9% and turned negative in 2015.
- The current account deficit narrowed to 6.8% of GDP in 2014 as exports grew and grants increased. The fiscal deficit also narrowed to 2.3% of GDP due to fiscal consolidation and higher grants.
- International reserves increased to $14.1 billion as confidence in the Jordanian dinar grew. The banking sector saw deposits grow 9.7% while lending grew moderately at
- Russia's economy has stagnated since 2009 due to lower oil prices and Western sanctions. However, conservative macroeconomic policies have maintained stability.
- Putin has consolidated power through security services, state corporations, and cronies. His model relies on state capitalism and protectionism.
- The future outlook predicts continued economic stagnation, a further falling standard of living, and no reforms on the horizon. Putin's legitimacy depends on nationalism rather than improving lives, which is not sustainable long-term.
The document analyzes the dynamic relationship between global oil prices and the exchange rate of the Eswatini currency (SZL) against the US dollar using daily data from 2005 to 2018. It finds a unidirectional causal relationship from global oil prices to the SZL/USD exchange rate using the Toda-Yamamoto Granger causality test, indicating that global crude oil prices influence Eswatini's nominal exchange rate. The study recommends that Eswatini's exchange rate policy consider global oil price movements to avoid misalignment of its currency.
The document discusses global oil supply and demand dynamics that are contributing to low oil prices. On the supply side, US oil production has increased significantly due to improved shale extraction technologies. OPEC countries like Saudi Arabia continue to maintain high production levels of around 30 million barrels per day despite low prices. Global demand is also weak, with slower growth in major economies like China, Japan, India, and Germany. Low oil prices are negatively impacting US shale oil producers and forcing them to shut down rigs. However, oil refineries are benefiting from cheap crude and operating at high capacity levels. ExxonMobil is highlighted as a stock that may continue performing well since its refining business is helping to offset declines in
This document discusses the oil price and its impact. It begins by outlining the importance of oil and its many uses. It then discusses the economics of oil supply and demand and how they are inelastic, leading to large price fluctuations. It outlines some major oil price benchmarks and describes key oil producing and consuming countries. The document then analyzes how volatility in oil prices impacts both global and Indian economies. It concludes by discussing India's vision for increasing energy self-sufficiency and alternative energy sources that may play a larger role in the future.
An Evaluation of the Impact of Fluctuating Oil Revenue and the Performance of...Triple A Research Journal
This document summarizes a journal article that analyzes the impact of fluctuating oil revenue on Nigeria's economic performance from 1999-2016. It finds that oil price shocks, as a proxy for oil revenue, have a negative relationship with economic growth. A VAR test shows a unidirectional causality from oil revenue to GDP, indicating that oil export proceeds mainly drove growth during this period. The study concludes that Nigeria's overdependence on oil exports leaves its macroeconomic variables and policymaking vulnerable to instability from volatile oil prices. It recommends diversifying government revenue sources and reducing reliance on oil funds.
The document summarizes the key factors that caused the 2014 and 2015 oil price crashes. In 2014, high oil prices from 2010-2014 led to record investment in oil production but also a slowing of demand growth. This caused an imbalance of rising supply and slowing demand. Additionally, OPEC changed its strategy to maintain market share amid rising non-OPEC supply. In 2015, OPEC increased production further while long-lead projects also added supply, exacerbating the imbalance as inventories rose sharply. Lower prices have since spurred demand growth but supply is expected to face challenges to keep rising at the same pace due to investment cuts, meaning prices may need to rise to balance the market.
Oil prices falling and Their Impact on World and Indian EconomyRishabh Hurkat
The presentations is focused on Reason Behind the Fall in Global Crude Oil Prices.
It also inculcates various Charts and Data which are Up-to-date.
The Basic Reason is to understand the Effect on Global and Indian Economy.
Devaluation of Crude Oil and its Impact on World EconomyRushita Thakkar
Lower oil prices are having significant financial and economic impacts around the world. Oil exporting countries like Russia, Saudi Arabia, Venezuela, and Iran are facing budget deficits and recessions as their oil revenues decline. Meanwhile, oil importing countries benefit from reduced costs, which can help support growth, though some oil producing areas within these countries are struggling. The declines are largely due to increased supply from the US and lower global demand.
The document summarizes economic trends in Nigeria for March 2015. It notes that global growth is expected to be led by the US economy in 2015, but US consumer spending has slowed in early 2015, pointing to slower Q1 growth. Oil prices rose in February but most metals prices fell. In Nigeria, the Senate revised budget assumptions for 2015, lowering the oil benchmark price. The IMF commended Nigeria's economic diversification efforts but noted vulnerabilities remain. Nigeria's GDP growth declined to 5.94% in Q4 2014, led by the non-oil sector. Inflation rose in January while interest rates increased. The CBN devalued the naira and closed the official exchange rate window in February.
Cowry market review for 2015 and outlook for 2016Tobi Ajayi
The document provides a review of the Nigerian economy and outlook for 2016. In 2015, real GDP growth slowed in the first two quarters but picked up to 2.84% in Q3 as crude oil production increased under the new administration. However, lower global oil prices reduced oil revenues. Manufacturing was neutral with expansion in production and orders offset by weakened demand and employment contraction. Foreign exchange scarcity also negatively impacted trade. While inflation remained in single digits, the currency depreciated due to declining reserves.
The oil price rebounded 31% over the last three weeks after falling 57% between June 2014 and January 2015. The document analyzes whether further recovery is likely, concluding that technical factors in financial markets explained the recent rebound but are temporary. Fundamental supply adjustments from reduced investment and drilling will impact prices starting in 2016-2017 by gradually clearing the supply glut. The analysis forecasts oil to average $56/barrel in 2015 before rising to $64/barrel in 2016 and $69/barrel in 2017.
The oil price rebounded 31% over the last three weeks after falling 57% between June 2014 and January 2015. The document analyzes whether further recovery is likely, concluding that technical factors in financial markets explained the recent rebound but are temporary. Fundamental supply adjustments from reduced investment and drilling will impact prices gradually from 2016-2017 as production declines. The analysis forecasts oil to average $56/barrel in 2015 before rising to $64/barrel in 2016 and $69/barrel in 2017.
1) Real GDP growth in Kuwait slowed to an estimated 1.3% in 2014 due to flat hydrocarbon production and lower non-hydrocarbon investment.
2) Inflation increased to 2.9% in 2014 as population growth pushed up housing rents and demand for goods.
3) The current account surplus narrowed to an estimated 35.5% of GDP in 2014, reflecting lower oil export receipts and rising imports on domestic demand.
The history of oil industry is full of booms and busts; the latest downturn is the deepest since 1990s starts from Jun 2014. The price of oil has been cut roughly by more than 60 percent since the June 2014. Crude oil prices tried to recover few times last year but a barrel of oil has sunk to its lowest level since 2004.
This document provides an initiating coverage report on Exxon Mobil Corp by The William C. Dunkelberg Owl Fund. It recommends buying Exxon stock with a target price of $88.07, noting that Exxon is currently trading at a discount to its historical valuation relative to competitor Chevron. The report analyzes Exxon's business segments, the integrated oil and gas industry environment of low oil prices and excess supply, and catalysts like expansions that are expected to drive future earnings growth.
The document provides a weekly media update with news related to Balmer Lawrie and other public sector enterprises (PSEs) in India. It includes articles discussing the Modi government's plans to sell stakes in BPCL and other PSEs to raise funds, declining growth in India's manufacturing sector, falling oil and commodity prices, and India's strategy to leverage oil imports to gain access to overseas markets for its energy companies.
- U.S. stocks closed little changed but had their strongest weekly advance since November, while the KLCI fell 0.3% dragged down by stocks like IOI Corp Bhd and Genting Bhd.
- European stocks slipped from a two-week high as banking shares declined, while most Asian stocks fell after their biggest weekly rally in four years with the MSCI Asia Pacific Index losing 0.1%.
- Gold posted its third straight gain on slumping equities and crude oil, while the dollar rose against most peers as an economic report showed rising U.S. inflation bolstering rate hike prospects.
- Oil fell below $30 a barrel as U.S. crude stockpiles
The document contains several news articles on the Indian economy:
1) The Indian economy is projected to maintain a 9% growth rate in 2022 and 2023 according to a report, though the emergence of new COVID variants poses risks.
2) Economic recovery gained momentum in 2021 but remains uneven, with private consumption and investments yet to fully recover from pre-pandemic levels. Rising inflation also poses a challenge.
3) India's fiscal deficit after April-November 2021 came to 46.2% of the annual target, better than last year due to higher revenues, but some experts believe achieving the full-year target may be difficult.
An oil crisis occurs when there is a sudden rise in oil prices accompanied by decreased supply. This endangers economic stability globally since oil is the main energy source. OPEC controls around 44% of global oil production and 73% of proven reserves, giving it influence over prices. Higher oil prices negatively impact India's economy by increasing fuel subsidies, worsening the current account and fiscal deficits, and potentially increasing inflation. Geopolitical tensions between countries like Iran, Saudi Arabia and Venezuela contribute to higher oil prices.
Malaysian Palm Oil FORTUNE 2014 Volume 6MPOC Europe
The document summarizes oils and fats developments in China in 2013. It reported that China's GDP grew 7.7% while CPI grew 2.6%, slightly lower than estimated. Several controversies occurred in China's food and oils & fats industry including bans on excessive government spending, dead pigs found in a river, and bird flu. Total oils and fats imports to China slightly decreased in 2013 as market prices declined and domestic demand reduced, lowering imports of soybean and palm oils. However, rapeseed oil imports increased due to higher domestic demand.
The document provides an economic summary and outlook for Nigeria in October 2015. It discusses key economic indicators such as GDP growth estimates of 2.5% for Q3, a rise in power supply to 4,500MW, stable government revenue of N442.6 billion, inflation increasing to 9.3%, and lower interest rates following a reduction in the cash reserve ratio. It also summarizes global and commodity market conditions, and their impact on the domestic economy. Overall, the outlook expects inflation to rise further to 9.4% in September and interest rates to remain below 10%.
Between 2014-2015, crude oil prices fell more than 50% due to excess supply and uncertain demand. The US has increased shale oil production, reducing imports and maintaining high stock levels. China's economic slowdown has weakened oil demand. Saudi Arabia wants to maintain market share by keeping production high to weaken shale producers' profitability. Low prices are expected to continue into 2018 as supply remains high and demand growth slows. Energy companies must optimize operations to improve efficiency in this challenging market.
declining crude oil pricing:causes and global impactSatyam Mishra
The document discusses the recent decline in global crude oil prices, providing an overview of key causes and impacts. It notes that falling oil prices benefit oil importing countries but hurt exporters. Technological advances in extraction led to increased supply while demand weakened, contributing to the price drop. While lower prices aid consumers, they reduce revenues for exporters like Russia, Saudi Arabia, Venezuela and Iran.
This document is a weekly media update from Balmer Lawrie, an Indian public sector company. It includes news articles from the past week mentioning Balmer Lawrie or related topics like other public sector enterprises (PSEs), oil and gas, and cold chain logistics. Specifically, it summarizes the opening of Balmer Lawrie's new cold chain unit in Bhubaneswar, as reported by several Indian news outlets. It also includes articles on macroeconomic topics like the IMF lowering India's growth forecast, the country's fiscal deficit, and oil imports.
Promoting Export-Led Economic Growth in Nigeria –The Export Processing Zone O...inventionjournals
The volatility in crude oil production in Nigeria, which in recent times, have been heightened by militant attacks on critical oil installations in the Niger Delta area and the continued price spiral in international oil market has once again brought to the front burner anxieties about the future of the oil sector in the Nigerian economy. The unfolding scenario has again exposed the Nigerian economy to downside risks of volatility in oil prices with attendant consequences and multiple effects on the economy and businesses as well.. Since the third quarter of 2015, fallen prices of crude oil and fluctuations in crude oil production in Nigeria have conspired to put the country’s economy in dire straits. The oil price has fallen by more than 50 percent since June 2014, when it was $115 a barrel. It is now consistently below $50 and has been as low as $37. These developments have put the nation’s fiscal operations in quandary. The government has rightly responded by putting in place various fiscal and monetary measures to stem the tide. The federal government has adopted some austere measures to cushion the effect of the persistent drop in revenue. However, the implementation of these short-term measures to shore up revenue could be impeded by political exigencies which often times overrides economic rationality. Thus, a more comprehensive and alternative approach that will promote non-oil export will be a better option. To this end, the authors recommend the revitalization and retooling of the Export Processing Zone (EPZ) Scheme in order to effectively diversify the economy away from oil to an export-led economy.
Promoting Export-Led Economic Growth in Nigeria –The Export Processing Zone O...
COLLAPSE IN CRUDE OIL PRICES
1. 1
ECO 740
ECONOMICS ANALYSIS
GROUP ASSIGNMENT
TOPIC 3: THE RECENT COLLAPSE IN CRUDE OIL PRICES
HAS AFFECTED PRODUCERS AROUND THE GLOBE.
DISCUSS ITS IMPACTS ON THE FIRM’S RESOURCE
ALLOCATION AND PRODUCTION DECISIONS.
PREPARED BY:
MUHAMMAD FARIS BIN RUZAIN (2015477346)
TEH ADAWIYAH BINTI OTHMAN @ ZAID (2015216086)
NUR ANIS SHAHIRA BINTI ABDUL MAJID (2015212594)
GROUP: AA7001DF
PREPARED FOR:
PM DR GEETHA SUBRAMANIAM
DATE OF SUBMISSION: 27TH
OF JANUARY 2016
2. TABLE OF CONTENTS
1.0 Introduction 1
2.0 Issues Arise When the World’s Crude Oil Prices Collapse 2
2.1 Government Revenue Decline
2.2 Malaysian Ringgit (MYR) Decline
2.3 Stock Market Decline
3.0 Implications on Firms’ Resource Allocation and Production Decisions 5
3.1 Government Revenue Decline
3.2 Malaysian Ringgit (MYR) Decline
3.3 Stock Market Decline
4.0 Concepts Studied in ECO 740 8
4.1 Demand and Supply
4.2 Exchange Rates
4.3 Porter’s Five Model
4.4 Economies of Scale
5.0 Recommendations and Conclusion 13
5.1 Recommendations
5.2 Conclusion
References
Appendices
3. 1
1.0 Introduction
Oil price plays a very important role in determining the economy of all countries around the
world. Oil is the main commodity which generates the growth of an economy. The relevance
of crude oil in the global economy can never be ignored considering its significance as a
source of earnings to some countries and also as a source of energy that enhance various
economic activities in the world.
Malaysia stands as among the fundamental crude oil net exporter countries in the region of
Southeast Asia. Therefore crude oil and petroleum-related revenue is identified as a major
source of income for the Malaysian government. Any changes in the prices of commodity
will therefore bring significant implications on a nation’s total annual revenue (Kok, 2015).
However starting June 2014, the crude oil prices have plunged by more than 50% due to the
oversupply of the commodity in the international market amid weak demand. On 23rd
January
2015, the international Brent crude was traded at around US$49 per barrel, decline from
the2014’s peak price of US$115 per barrel in mid-June. The collapse of the crude oil prices
has forced the Malaysian government to revise its 2015 Budget. This is due to the fact that a
huge portion of the country’s annual income grows from the crude oil and petroleum-related
sources.
The Star (2015) has reported that the government also has lowered its oil price assumption to
US$55 per barrel from the earlier estimate of US$100 per barrel and projected a weaker
ringgit to be confronted by the country as an effect of the declination in oil prices. Taking
into accounts of all the impacts of falling oil prices on the country’s economy and the
government’s revenue, the gross domestic product (GDP) growth projection has also been
revised down to 4.5%-5.5% from the initial forecast of 5%-6%, while the fiscal-deficit-to-
GDP target has been raised slightly higher to 3.2%, compared with 3% previously under the
revised Budget 2015 (Kok, 2015).
4. 2
2.0 Issues Arise When the World’s Crude Oil Prices Collapse
2.1 Government Revenue Decline
Over the last six months, the global crude oil prices have plunged more than 50% due to
oversupply amid weak demand as this situation is due to higher output from non-OPEC
countries as well as OPEC is not willing to undertake production cuts as OPEC wants to
maintain its market share. Response to this issue, the Malaysia government has consistently
reiterated that the crude oil prices are beyond our control and analysts expect the price will
take quite a while to stabilize. The prime minister, YAB Dato’ Sri Mohd. Najib bin Tun Haji
Abdul Razak during a revision of 2015 budget in January 2015, has said falling crude oil
prices will reduce the government revenue due to government taxes oil producers concerning
when oil prices are low, the government revenue will undoubtedly take a hit (The Star
Online, 2015).
This is extended to Petroliam Nasional Bhd’s (Petronas) as the state-owned oil company
dividend contribution to the government could drop in 2016 since the oil price fluctuation
continues, said Affin Hwang Capital Research as cited in (Kavithah, 2015). The collection
from the Petronas’s dividend is said to decline from RM26 billion in 2015 to between RM16
billion to RM 20 billion for 2016 which have an impact on the government revenue. In
addition, due to the global oil prices, the government’s overall revenues seem to be affected
as petroleum income tax, petroleum royalty and Petronas’ dividend will be lower.
On the other hand, according to MIDF Research Sdn Bhd as cited in Kavithah (2015),
petroleum-related revenue is expected to plunge to RM41.3 billion as compared to 2015
revised budget of RM48 billion. Furthermore, the domestic oil and gas (O&G) industry
which depend heavily on Petronas also being affected due the recent global oil price slump,
noted some firms suffered two-digit losses including UMW Oil and Gas (18%), Sapura
Kencana (10%) and Bumi Armada (12%) (The Malay Mail Online, 2014).
Petronas and other O&G industry which contribute a lot to government revenue through
corporate taxes have severely damaged Malaysia’s fiscal revenue base due to falling in global
crude oil prices as according to Department of Statistics, petroleum production is vital to
Malaysia’s economy as crude oil extraction contributes roughly one-sixth to total economic
output (The Economist, 2014).
5. 3
2.2 Malaysian Ringgit (MYR) Decline
As the world’s crude oil prices has collided since 2014, the Central Bank of Malaysia has
been struggling in containing the sharp depreciation of Malaysian Ringgit (MYR) (India
Forex Advisors, 2015). This shows that a continuous declination in the world’s crude oil
prices has actually sparked up the issue on the fall in MYR.
The year of 2014 has witnessed on the collapse of the crude oil prices where in the mid of
June, the price of the crude oil was at US$115per barrel and it started to decline until it
reached US$50 on 14th
August 2015. With the downfall in the price of the world’s crude oil
prices, this has led to a negative impact in the commodity currency such as MYR.
Commodity currency refers to the currency which holds a dependency on the production of
the raw materials as a major source of a nation’s treasury. As Malaysia depends on the
production of the raw materials especially on the petroleum-related resources thus the
direction of MYR also tends to move in tandem with the movement of the crude oil prices
(Farhan, 2015).
An article written by an economist at Focus Economic Robert Hill also supported the issue of
the weakening in MYR which is due to the collapse in crude oil prices. He connoted that on
29th
September 2015, the Malaysian ringgit peaked at 4.46 MYR per USD, making the ringgit
as one of the world’s worst-performing currencies. The ringgit continued to weaken 6.3%
from 28th
August 2015 and 36.0% from the corresponding day in 2014. The fall in ringgit has
been caused by a series of events. He highlighted that the weak demand for Malaysian
exports, particularly oil products and natural gas, which make up nearly a quarter of total
exports, has persisted since the oil prices collapsed in 2014(Hill, 2015).
Another data showed by Bloomberg also emphasized on the depreciation of MYR which is
caused by the declination in the crude oil prices. The article also connoted that the
government’s commitment to reduce a fiscal deficit that has plagued the country since 1998
has been more complicated by a drop in global crude oil prices which have more than halved
since their peak in mid-2014. Benchmark Brent crude fell 1.5 per cent on 19th
October 2015
to US$49.70 a barrel as compared with the high in the previous year in which the price was
US$114.81 (Today Online, 2015).
6. 4
2.3 Stock Market Decline
When low prices in crude oil occur, it could cause concerns about the Government budget
balance and trade balance, which will add downward pressure to ringgit and economic
growth. As oil company’s profits are plummeting, so will the oil company shares that will
drag down the whole market. This is worrying as oil and gas revenues accounted about 30%
of the Government’s annual budget. The sector’s contribution to the Malaysian economy was
projected to reach 11.1% on the gross domestic product (GDP).
Crude futures slumped in Asian trade, with US oil dropping more than 3% towards US$27
(RM118) per barrel and it is the lowest since the year 2003. The FBM KLCI fell 10.39 points
or 0.6%, tracking weaker Asian share markets as crude oil prices fell. At 5pm on 20 January
2016, the KLCI closed at 1,618.83 points on losses in stocks like Sapura Kencana Petroleum
Bhd and UMW Holdings Bhd. Across Asia, Hong Kong's Hang Seng fell 3.82%, Japan's
Nikkei 225 was down 3.71% while South Korea's Kospi dropped 2.34%.
The declined in Asian stock markets due to constant slide in oil price dealt a further blow to
global investor’s appetite for riskier assets. All of these came after the International Energy
Agency, which advises industrialised countries on energy policy that the oil markets could be
drown in oversupply in the year 2016. Investors are also selling shares of companies that may
have exposure to the oil industry. The price of oil has now fallen so low that investors are
also worried that it could mean global economic growth is much weaker than expected,
which could hurt all companies.
In Malaysia, investing companies shared same sentiments that the current situation in the
local stock market will remain for some time mainly due to the volatility seen in oil price.
Buying opportunities arose for some oil and gas shares as crude oil prices had never been so
low for a long time. This was proven when counters in Bursa Malaysia saw 830 decliners
versus 168 gainers, while 259 counters were unchanged. A total of 2.35 billion shares valued
at RM2.1 billion changed hands.
7. 5
3.0 Implications on Firms’ Resource Allocation and Production Decisions
3.1 Government Revenue Decline
Concerning to losses of revenue from the declining of price crude oil, it will impact
government’s resource allocation by government revise the yearly budget as what
government did in January 2015. The government responds to the shortfall in revenue by
reducing the development expenditure such for the purpose of building of schools, roads and
houses of worship. It also concerns on the other expenditures such as salaries of civil
servants, cost of medicine in government hospitals, agriculture subsidies and expenditure for
security including armed forces (The Star Online, 2015). Reducing in this expenditure could
hurt consumer spending and delay infrastructure projects as well slowing down overall
economic growth of the country (The Economist, 2014).
It is supported recently by the Economic Planning Minister, Abdul Wahid Omar as
Malaysia’s government may revise its budget for 2016 if crude oil prices remain low and this
is proven when Prime Minister will table the revised budget on 29th
January 2016. This is
because the budget was structured at the assumption that Brent Crude would average $48 a
barrel in 2016 but then, recently it was trading at $37 a barrel which demanded government
to revise the budget (Reuters, 2015). Revised budget definitely show government will cut
expenditure that affect the resource allocation for the country.
In addition, Petronas also announced a cut of between 15 to 20 per cent to its annual capital
expenditure of RM50 billion (Sue, 2015). Sue (2015) in her article also added the oil giant’s
CEO also announced that the fortune 500 companies will review its projects, with no more
marginal oil-field developments unless Brent prices go over US$80 per barrel. This
worsening issue is further explained by Royal Dutch Shell’s oil unit in Malaysia as they will
cut 1,300 jobs or about 20% of its Malaysian workforce over the next two years as they are
preparing to be more competitive in a low oil price environment (Eaton, 2015). This decision
has shown how the falling of crude price affect the production decision by Petronas and other
O&G companies as they cut their expenditure.
Despite of these negative impacts, The World Bank estimates that 30% decline in crude oil
prices could boost global GDP up to 0.5% and this could provide opportunity for Malaysia to
have a strengthen venture in manufactured products.
8. 6
3.2 Malaysian Ringgit (MYR) Decline
The issue of weakening in the value of MYR has raised the concerns among all the citizens
especially the economists in discussing on its impacts to business and the economy as a
whole. The Head of Research of Inter-Pacific Research, Pong Teng Siew highlighted that
companies such as electronic companies which derive their sales domestically with imported
intermediate or raw materials would be the worst hit from the weakened ringgit. This is
because those companies would have to pay for their costs in USD and would have to sell
them back to the local citizens in the national currency which is MYR. This would then
impact on the companies’ profitability if the situation continues(Khoo, 2015).
In looking to the circumstance above, firms that are related to importing raw and intermediate
materials may find their way to reduce or to minimize the number of imported goods and by
importing more goods would only incur them a higher cost and it may also affects their
profits. Another alternative that they may look upon is by increasing their selling price in
order to sustain the increased cost of operation that they have incurred.
However, the weakening of MYR will also implies some positive consequences to the
domestic economy especially in the near term. According to the Executive Director of
Malaysian Institute of Economic Research (MIER), Dr Zakariah Abdul Rashid suggested that
the depreciation in the value of MYR will eventually help to boost the tourist arrivals in
Malaysia for a short period of time. This is because, when the ringgit’s value weakens,
foreign tourists with stronger currencies are able to spend more in our country. Therefore in
short, Malaysia becomes much more affordable to those foreign tourists.
Apart from that, it will also help the nation to boost its export-oriented industry (Soon,
2015).When exports are becoming cheaper and more attractive to the international market
specifically the US market, the favourable USD/MYR exchange rate can possibly lead to a
steady improvement in the demand for the country’s export. A weakened ringgit can act as a
stimulus to the Malaysian businesses as it has now become more affordable for foreign
markets to purchase Malaysian-made goods. The increment of demand for the domestic
products will likely to generate more profits for the certain businesses such as the
manufacturing sector and also provide more job opportunities for the citizens.
9. 7
3.3 Stock Market Decline
When the crude oil price affects the oil company shares which consequently declined its
value in the stock market, it will give impacts on the firm’s resource allocation and
production decisions. Firm specifically in the petroleum-based industry, will have to cut their
cost in order to cover back the revenue they have lost due to the fall of crude oil prices and its
market shares. This usually being done by pink-slip or dismiss the employment of some
workers in the company. Example of a retrenchment plan taken is the action recently being
done by Petronas which dismiss the service of contract workers and/or workers on project
basis in order to reduce their costs in order to optimize production.
Firms in petroleum-based industry also can reduce their cost by cutting a percentage of the
wages or salaries of their workers. The revise in salary will help in maintaining the labour
needed for efficient production and maximizing the profit. It will also help the firm from not
losing too much of the profit they obtained from the drop of oil prices. Petronas for an
example, reduces 20% from the current salaries of its workers since 1st
May 2015 because of
the challenging market condition caused by the low global oil price.
When the price of oil decreases, it will cause hardship to sustain capital resources such as
labour and machinery. For example, an oil rig operation need 30 men to operate a drilling
machine efficiently, thus if there are 3 machines it needs 90 men. However, due to reduce in
revenue, the firm has to cut cost by reducing its manpower requirement. If the firm reduces
1/3 of its labour force, one of the machines would be left idle. Therefore, the firm can cut
their production by just using two oil drilling machine focusing two oil wells to optimize
their productivity through minimizing costs that could provide some buffer to the reduce
revenue.
10. 8
4.0 Concepts Studied in ECO 740
4.1 Demand and Supply
Since June 2014, global crude oil prices plunged by more than 50% is said due to oversupply
and weak demand. This clearly shows how demand and supply of the crude oil has affected
its price that hurt producers around the globe. According to International Energy Agency
(IEA), there could be 2 million barrels per day of oil surplus by the second quarter of 2015
yet the demand is expected to remain weak amidst slower global economy (Lim & Tim,
2015). Demand and supply has a positive relationship as increased in demand would increase
in supply. In this issue, due to oversupply of crude oil by many producers over the subdued
demand has declined the price of crude oil which some countries gain benefits and some gain
losses.
The surplus of oil market is due to subdued demand from non-OPEC producing countries, by
which in a November 2014 analysis, Citibank estimated that supply was exceeding demand
by 700,000 barrels per day (Deloitte, 2015). This resulted in a build-up of oil inventories as
supply over demand. The excessive supply of the oil is due to OPEC decided not cut the
output prices by responding to maintain the production levels which are led by Saudi Arabia
as the subsequent November decision by OPEC to maintain their collective production
ceiling of 30 million barrels a day (Ellyatt, 2015).
The subdued in demand is related to economic activity by many countries are switching into
green technology by replacing usage of oil to other fuel as well reducing dependency towards
oil (Evans, 2014). In addition, the economies of Europe and developing countries are
weakening, and at the same time, vehicles are becoming more efficient, which has caused the
demand for fuel to lag (Tarver, 2015). The demand of crude oil is also related to the
economic activity concerning on season where in the winter in the northern hemisphere and
during summer in countries which use air conditioning will slower the demands for oil. It
means the slower in certain economic activity affect the demand of crude oil.
America has becoming the world’s largest oil producer has an impact in demand of crude oil.
Even though it does not export crude oil, it now import much less which creating a lot of
spare supply. In conclusion, due to the theories of demand and supply, the price of crude oil
has to be lowered in order to increase the demand towards the crude oil and reduce the
oversupply of crude oil as the plunge in the crude oil hurt many exporting countries.
11. 9
4.2 Exchange Rates
In discussing the issue of the global crude oil prices and how the changes in the prices of the
crude oil will bring implications to the nation is much related to the concept of exchange
rates. Import and export sales and profit margins are recognized as among the important
determinants which are relatively sensitive to the changes in the exchange rates.
Exchange rates are quoted as foreign currency per unit of domestic currency or domestic
currency per unit of foreign currency. Exchange rates basically allow us to denominate the
cost or the price of a good or service in a common currency (Krugman & Obstfeld, 2014).
Exchange rates highlight on the appreciation and also the depreciation of a currency. When a
currency appreciates it means that it increased in value relative to another currency whereas
depreciates means that it weakened or fell in value relative to another currency.
A study conducted by Chen and Chen (2007) showed that real oil prices may have been the
dominant source of real exchange rate movements and there is a positive link between oil
prices and real exchange rate. Another literature also suggested that there is a positive
relationship between the oil price and the exchange rate in net oil exporting countries. In
other words an increase in oil prices leads to an appreciation of the domestic currency while a
decrease in oil prices causes depreciation in the domestic currency. Golub (1983) also
suggested that a depreciation in the local currency relates to decrease in the exchange rates
and this occurs when the price of oil decline (Aziz, 2009).
With oil priced in USD, the MYR falls in line with the oil price reductions against the USD.
The declination in MYR also implies that the exchange rates also decline. The plunging oil
prices inevitably affected the MYR and the value continues to weaken (Kok, 2015).
With this, it has made the domestic currency to worth less as compared to other countries for
instance the United States. As an effect of the exchange rates, specifically in a circumstance
of a depreciating domestic currency, it is highlighted that the exports will be more attractive
since it is cheaper as compared to the imports. The price of the imported goods will be
automatically increased and therefore the local consumers will have to bear the burden in
paying higher or more for the imported products.
12. 10
1.1 Porter’s Five Model
1.1.1 Potential Entrants
A new Oil and Gas Company would require a high capital to enter the market or the industry.
With the other establish petroleum companies around the world and also in the domestic
arena, it will be costly to establish a new company. One of the costs centre would be the
research and development role to produce a better quality oil products. The other cost would
be the production of the oil itself such as the drilling process of oil wells. Public policy
constraints also can be a barrier for potential new entrants to enter the petroleum industry. For
example in Malaysia, Petronas is one of the government-linked companies for oil and gas in
Malaysia and the government may not keen to license other petroleum company as it would
increase competition in domestic market.
1.1.2 Substitutes and Complements
In the petroleum industry, the Organization of the Petroleum Exporting Countries (OPEC) is
the major crude oil producers which produce 40% of the world’s crude oil supply. They also
control and influence the price of crude oil for the world. However, the shale oil revolution
has stimulated tremendous production of oil and natural gas especially in the United States.
Shale oil is a substitute for conventional crude oil produce by oil producer countries. It also
complements the production of oil as another alternative for energy fuel. Other substitute for
oil and gas would be the new and under gradual development of green energy.
1.1.3 Buyer Power
As stated in the law of demand, when price is increase, quantity will decrease because there is
no demand for the products. For example on the current situation of oil industry, when the
crude oil is oversupply, the buyer power will increase. It is a disadvantage to oil company
such as Petronas as the net exporter to gain profit from the oil production. Therefore, the
buyer power needs to curtail by reducing the overcapacity of oil production in order to
decrease back the buyer power.
13. 11
1.1.4 Supplier Power
The production of oil and gas industry plays a major role in determining the supplier power.
Therefore in the current situation for example, surplus quantity of crude oil will reduce the
supplier power and it will be a disadvantage for net exporter to gain revenue and an
advantage for importer as the price of oil is reduced. The depreciation of oil price is cause by
over surplus quantity of crude oil in the market. As a result, suppliers have no power in
determine the price and consequently have to decrease the price which results in the drastic
drop of crude oil currently happening in the world down from US$108 in June 2014 to
US$28 in January 2016 per barrel.
1.1.5 Intensity of Rivalry
The current growth of oil and gas industry is considered a negative growth given by the
reduction of price in crude oil due to surplus production by the industry. The existing
competition between the OPEC members make it impossible to reach an agreement on
reducing the production of the crude oil in order to increase the price of oil that could
improve economic growth of many countries. If this situation continues, many oil companies
will be heading towards bankruptcy and pink slip of many workers in oil industry in order to
reduce cost.
14. 12
4.4 Economies of Scale
Economies of scale can be defined as the advantages of which firms can attain due to their
large scale of production. In analysing the economies of scale, it is important to highlight on
its two types which are the internal economies of scale and also the external economies of
scale. As a full-service oil company, Petronas enhance its internal economies of scale by
emphasizing on its efforts in the area research and development (R&D). Among its efforts in
R&D include by introducing the enhanced oil recovery (EOR) programme which aimed to
revive the production of the mature and depleting oil wells. Petronas realized on the
importance in maintaining the sustainability of the natural resources particularly its oil and
petroleum assets and at the same time they also realized that R&D plays a crucial role in
improving its capability as an oil producer company in providing better services to the public.
With that, R&D is seen as one of the platforms which can assist the organization to achieve
its desired goals. Petronas is expected to spend RM1.1 billion in conducting the R&D.
Therefore in realizing the large scale of the EOR project, Petronas, through its E&P
Technology Centre has allocated substantial resources, manpower and also finance to conduct
research and to eventually develop innovative and applicable technologies in rejuvenating
and enhancing production of oil (The Star, 2014). By having their own R&D department, it
may help Petronas to reduce its average costs and raise its total revenue by developing more
efficient methods of production.
Apart from that, Petronas also attain a benefit from the external economies of scale especially
in the context of training and development opportunities among the members in the
organization. With the availability of various training facilities provided by the government
under its financial allocation towards Petronas, this has helped the oil industry steered by
Petronas to go further. For instance by launching the new training facility which is known as
the Integrated Oil and Gas Training Centre in Bukit Rakit, Terengganu on 27th
March 2014
(Offshore Energy Today, 2014). With such training programme, Petronas aimed to equip its
workforce with necessary skills and knowledge in the oil and gas industry with an objective
to enhance its capability as a full-service oil company. Through the efforts in training and
development, this shows that Petronas is committed enhancing its human capital by
equipping them with all the necessary skills and knowledge which would enhance their
capability in carrying out their duties and works which in turn would also help Petronas in
achieving the organizational goals and profits.
15. 13
5.0 Recommendations and Conclusion
5.1 Recommendations
5.1.1 Shifting to other sectors
In responding to Petronas losses some revenue due to falling in crude oil prices which
directly affect the government revenue, the government needs to accelerate the diversification
of its economy by fostering a swifter expansion of the manufacturing and services sector
(Nurhisham, 2014). It means that government must reduce the dependency on oil and gas
revenue in the budget by strengthening other sectors as align with the National Key
Economic Areas (NKEA). Government could sustain demand for our electrical and electronic
(E&E) products due to strength of US economy (The Star Online, 2015). By shifting to other
sectors that potentially can boost the government revenue, it will help to sustain the revenue
through paying corporate taxes and can cover losses from the lower crude oil prices that hurt
the oil and gas industry. Besides that, the government must also tighten up project and
spending monitoring and take the necessary remedial and disciplinary actions to prevent
costly incidents of wastages, leakages, poor financial management, and non-completion or
late deliveries of projects (The Star Online, 2014). It is align with 11th Malaysian Plan as the
government is aiming to reduce the dependency on petroleum-related revenue to 15.5% by
2020.
5.1.2 Enhance the Government’s Credibility in Disseminating Information
The ringgit’s depreciation is mostly caused by external factors. The issue of falling of MYR
is beyond the government’s control as it relates with the fall of the world’s crude oil prices.
However, it is necessary for the government to enhance its credibility in managing the
economy, which at the same time, will affect how the players in the market feel. Therefore, it
is important for the government to procure the ability in disseminating the right information
on the economic situation in Malaysia as there has been some misleading information and
heated discussions pertaining the country’s economic condition due to the declination in
ringgit. By disclosing the actual facts and information to the public in regards to the
economic condition, the public will be able to obtain the facts and information on the benefits
and drawbacks of having a declination in ringgit, the status of the economy and the
government also must be able to enlighten them on what are the measures to be taken by the
government to comprehend the issue. With this, the government will be able to gain the trust
and to boost the confidence among the public and also the foreign investors.
16. 14
5.1.3 Production measurement
An action need to be taken in order to increase the crude oil price back to a more reasonable
price. Such improvement could help to attract investment from the global investors which
have impacted the stock market due to the volatility in oil price for the past 18 months. First
of all, the major producers of crude oil specifically the members in The Organization of the
Petroleum Exporting Countries (OPEC) should collectively reduce their production to avoid
oversupply that has caused the reduction of oil price. By reduce production there is tendency
for the oil price to pick up and stabilize although it may not back to the original. Nonetheless,
such stable pricing could help the economic growth of many countries.
Other than that, the production of U.S Shale Oil should be halt to avoid over supply of oil in
world market. The U.S should only produce when there is a low production of oil or a scarce
of oil resources is detected so that they will not waste the resources in making the shale oil
and able to gain more profit by producing more in the future when the world needed them the
most. However, the U.S can produce or introduce their shale oil globally but at a low
production in order to suit with the demand and not damaging too much on the price level of
crude oil around the world.
5.2 Conclusion
In conclusion, Malaysia gains losses due to collapse of crude oil in terms of decreased in the
government’s revenue, shortfall in Malaysian Ringgit as well decline in market share. These
occurred as Malaysia is the next exporter of oil, which falling in crude oil prices affect the
firms’ resource allocation and production decisions by the government and the firms have
taken corrective action to respond with the fluctuation of the crude oil prices. It is to ensure
Malaysia is sustainable and competitive to the global changes as to reduce the deficit and
achieve the expected growth. The issues of the crude oil prices also encourage the
government and firms to competitively and aggressively respond to the global challenges as
reality outcome should be the consideration in any actions taken by the government and the
firms.
17. References
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