SCENARIO IN MALAYSIA IF CRUDE OIL FALLS BELOW USD10 A BARREL

PrintMalaysia is not in danger of duplicating the Greek scenario of banks capping withdrawals even if crude oil price drops to USD10 a barrel, argues lawyer Dato’ Seri Matthew Yeoh

As nightmarish as it may sound, it has happened before once, at the end of the last century. That event was the precursor of a global financial crisis that happened shortly after.

In recent days, oil prices have plummeted to below $30-a-barrel amid warnings the rout could reach as low as $10 and bring down petrol prices to levels last seen in 2009.

Analysts warned the oil market remains fundamentally out of balance as record oversupply and stagnant demand weigh on traders. Improvements in drilling technology, discovery of huge oil fields in the US and most recently, the lifting of sanctions on Iran, have and will contribute to the continuing glut.

There are also the complicated scenarios advanced by many theorists that at play is a huge global chess game by US to weaken the Russian economy, or an intra-OPEC manipulation headed by Saudi Arabia to punish its errant members for breaching the price levels set among members. In fact, OPEC which controls a third of the world’s output has stated that they would not hold an emergency meeting anytime soon to cut production. It is also certain that oil production would not be reduced unless non-OPEC countries, for example Russia, agrees to cut back its output. The paradox for these countries is that faced with their shrinking currency, forex reserves and high sovereign debt, it is necessary in fact to increase production just to keep up with its projected revenue but this strategy is going to lead to further glut.

Whatever the reason is, it appears that the price of oil has gone on a free fall for the moment without the bottom in sight.

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v1Dato’ Seri Matthew Yeoh is managing partner of Yeoh Mazlina & Partners, member of ASEAN Legal Alliance.

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