Global markets, now roiled by the Covid-19 outbreak, are shaken once again when global oil prices took a historic plunge over the weekend. The only upside to this is the lower price at the gas pumps – MIDF Research expects prices for RON 95 to hit a new low of RM1.32 per litre, but stressed that the negatives far outweigh the positives, Berita Harian reports.

To bring you up to speed, the drop in oil price is due to Saudi Arabia slashing its export oil prices over the weekend, initiating what seems like the start of a price war aimed at Russia. The move was a deliberate display of retaliation over Russia’s refusal to join the Organisation of the Petroleum Exporting Countries (OPEC) in a large production cut as the coronavirus continues to slow the global economy and, with it, demand for oil.

Currently, the Brent global oil benchmark is around US$31 (RM130.50) a barrel, after prices plunged by about US$11 a barrel (or 25%) on Sunday. According to the New York Times, this is the sharpest decline since at least 1991, and Saudi officials have already made preparations to ramp up the kingdom’s oil output to compensate for the lost revenue caused by the steep discount.

If oil prices stay at around US$35 (RM147), inflationary pressure is expected to stay low, and this will support domestic consumption. However, the drop in global fuel price will impact the country’s fiscal capacity, considering that the Budget 2020 was drafted based on the then-stable oil prices of US$62 (RM261) a barrel.

In a note, MIDF Research said it is expecting Malaysia’s gross domestic product (GDP) growth to be “under pressure” in 2020 at this juncture, as oil prices continue to fall. “The newly formed government will likely revise the Budget 2020 and we may see a reduction in government expenditure and investment,” it added.

Apparently, every US dollar drop in crude oil prices would impact the nation’s coffers by up to RM300 million for the year. Lower oil and gas prices have caused the mining and quarrying sectors contribution to drop last year, which partly affected Malaysia’s slowing GDP growth.

According to reports, there’s a slim expectation that this cut-price move will be short-lived as the oil producers – Saudi and Russia – can still reach a compromise. Otherwise, pundits expect oil prices may dip under the 2016-low of US$26 (RM109.47) a barrel.

For the week of March 7 to 13, the price of Euro 4M RON 95 petrol retails at RM1.89 per litre (dropped 19 sen from RM2.08 in the previous week), while RON 97 is priced at RM2.19 per litre – a 21 sen drop from the previous RM2.40 mark. Euro 2M diesel costs RM1.96 a litre (17 sen down), whereas Euro 5 diesel is RM2.06 per litre.