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Investor money is fleeing from Malaysia

Investor money is fleeing from Malaysia

Old Jan 24th 2015, 9:22 am
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Default Investor money is fleeing from Malaysia

An interesting cover story in the Nikkei Asian Review - January 22, 2015 detailing Malaysia's current woes caused by the tumbling oil price.

Twin deficits looming?

See:
Slumping crude starting to hit Malaysian economy- Nikkei Asian Review

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Old Jan 24th 2015, 11:24 am
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Default Re: Investor money is fleeing from Malaysia

It's ok. On the same page, an oil guru is predicting that the price of oil will rebound in 2016.
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Old Jan 25th 2015, 6:30 am
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Default Re: Investor money is fleeing from Malaysia

As someone with a long association with the oil industry, both working for British Petroleum and working for various national Oil Companies, this is a familiar cycle which results in both periodic highs and periodic lows and neither lasts for very long.

As the price of oil drops due to oversupply, various expensive sources of oil (i.e. where the cost of extraction is high due to difficult geology or processing concerns), then these sources of oil drop out of the equation as the cost of extraction is greater than the value of the resultant crude is worth - for example oil sands reserves which are often very extensive have very high extraction costs and therefore are only viable when the price of a barrel of crude is above $40 - $50 USD/Barrel.

So as the price drops, these supplies will taper off, leading to a correction in the oversupply and a gradual rise in the barrel of crude back to more typical price ranges.

This is why the Saudi position of neither reducing nor increasing supply is actually quite smart, because it actually supports market stability more than intervention.
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Old Jan 25th 2015, 7:23 am
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Default Re: Investor money is fleeing from Malaysia

Originally Posted by bakedbean View Post
It's ok. On the same page, an oil guru is predicting that the price of oil will rebound in 2016.
Not so fast BB. Rebound. What rebound?

I read that article too. In it the oil guru (Daniel Yergin) ’s guestimate is an average oil price of around $50 this year, and only $55 to $65 next year. That's not much of a rebound, and a long way off the $100+ Malaysia had been enjoying.

At $75 Petronas warned that its contribution to annual government revenues in 2015 would be RM25 billion less.

RM25 billion. That's almost 10% of the government’s 2015 total budget. Ouch! And that was with an oil price at $75, not $50. Double ouch!

Even the new 6% GST will only contribute an additional RM billion to RM6 billion.

That leaves only one way to go for GST methinks…

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Last edited by JC3; Jan 25th 2015 at 7:29 am.
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Old Jan 25th 2015, 11:23 am
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Default Re: Investor money is fleeing from Malaysia

Hahaha. Well the oil guru won't know for sure. But I agree totally with KolF. The bakedbeans also had long association with the petroleum industry and we used to see the big swings up and down over the years. Quite dramatic sometimes. And when the oil price was high, the companies would spend and the bakedbeans would be very happy and boosting the retirement reserves. And when the price was low, I'd be scouring the jobs columns. Absolutely true. Very volatile market.
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Old Jan 25th 2015, 11:30 am
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Default Re: Investor money is fleeing from Malaysia

In my humble opinion knowing a little about one segment of this industry its going to take some long time before it returns to $100. due to planning very long lead times on major equipment / major investments its cutting back time but this will not show through for some time as projects & future planning are looking at least one or two years & more ahead. People are only seeing the price come down now they are not seeing the long term reciprocation yet, it will show up in many ways through lack of peoples spending power. Of course major players like Petronas will have far less returns to support the economy.
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Old Jan 25th 2015, 1:37 pm
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Default Re: Investor money is fleeing from Malaysia

It would indeed be a brave man who forecasts the oil price.

For my part, I would expect to see the price rebound quite significantly in 1-3 years time. Why? Principally because Saudi Arabia has the lowest upstream costs of any major producer and they can still make a profit out of oil at $40 a barrel - oil is their major export and they have no other resource so they want to maintain their dominance. Most other major producers will struggle at $40 and because, for them, oil production is a marginal privately-financed business they will not simply turn off the taps and wait for the price to go up - these private oil companies will go bust and the production capacity will be lost because no-one will want to get back into this particular fight.

For the Saudis it is a game of poker - they are just waiting for the other players to fold so they can scoop up the reward of a higher price with less competition.

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Old Jan 25th 2015, 3:35 pm
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Default Re: Investor money is fleeing from Malaysia

Last week some countries in S.E.A. were asking Saudi and OPEC to cut back oil production to stabilize the price. Saudi said it's not their problem, but it's the US that has been over producing slate oil and flooding the market to bring oil prices down.
I'm just guessing, could it be the US using this to cripple Russia?

In the early 80s oil prices slumped due to OPEC over production.That time many of the companies in Alberta were US owned. The US companies abandoned the sites, left machines to rot and retreated back to the US. Unemployment was very high and many Petroleum and Chemical engineers lost their jobs and were applying for road sweepers jobs and whatever available jobs in the city of Edmonton and Calgary. That oil situation affected the Province for quite a few years and housing went down as many could not afford their mortgage. It was a domino effect across the whole province.

15 years ago the North Alberta tar sands oil fields were gushing and prices picked up. That time the government said as long as the oil price remain above US$60 a barrel they could still make money. The technology has advanced a lot since and they can extract these oils more efficiently now than before at US40-50 a barrel.
Just wonder if they are stupid enough to bring it further down below the US$40-50 levels even if the US companies are politically driven?

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Old Jan 25th 2015, 5:12 pm
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Default Re: Investor money is fleeing from Malaysia

The idea that the Saudis are taking a 'do nothing' approach to allow competitors such as Canada and Venezuela to go bust supporting their industries with an oil price which is not achievable for them is compelling, but also a bit paranoid.

There are a thousand and one reasons for the Saudis to do nothing, politics (both at home and abroad) as well as basic economics being most of them.

When doing nothing pays such dividends then doing nothing is the solution.

Originally Posted by bakedbean View Post
And when the oil price was high, the companies would spend and the bakedbeans would be very happy and boosting the retirement reserves. And when the price was low, I'd be scouring the jobs columns. Absolutely true. Very volatile market.
This is also why I maintain sufficient cash in the bank to survive without a job for two years and avoid taking on unaffordable commitments. When the oil business is paying, it pays very well. When it is not paying, it is better to be somewhere else.

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Old Jan 25th 2015, 6:03 pm
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Default Re: Investor money is fleeing from Malaysia

Sorry, I'm not suggesting the Saudis could bankrupt whole countries, but maybe knock out a few producers (ie companies or JV's), most probably US shale producers.
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Old Jan 25th 2015, 6:12 pm
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Default Re: Investor money is fleeing from Malaysia

Originally Posted by columbine View Post
Last week some countries in S.E.A. were asking Saudi and OPEC to cut back oil production to stabilize the price. Saudi said it's not their problem, but it's the US that has been over producing slate oil and flooding the market to bring oil prices down.
I'm just guessing, could it be the US using this to cripple Russia?
I don't see how, since the US Government is neither financing nor subsidising the US oil industry. I'm sure the Russians see it as a conspiracy though.
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Old Jan 25th 2015, 10:21 pm
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Default Re: Investor money is fleeing from Malaysia

I also can recommend an interesting article for those with some financial background, published in "Penang monthly".

The grey world of capital movements | Penang Monthly

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Old Jan 26th 2015, 2:41 am
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Default Re: Investor money is fleeing from Malaysia

IVV,
In todays world where governments and big capital often are in agreement, I would not hold the government entirely responsible for the financing of political strategies.
And - as with many conspiracy theories, there is of course more to it.
Like that Saudi and the other Sunni led ME leaders have an active interest to see (the Russian supported) Syria and Iran collapse.
Plus of course that they themselves are depending on US protection against parts of their own population.
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Old Jan 26th 2015, 7:53 am
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Default Re: Investor money is fleeing from Malaysia

Originally Posted by Gunnar45 View Post
In todays world where governments and big capital often are in agreement
Funny, I would have said that they are quite often in disagreement. When a government does something unpopular with the big companies then there is flight of capital out of the country (as has recently been the case in Russia).
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Old Jan 26th 2015, 4:32 pm
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Default Re: Investor money is fleeing from Malaysia

Another article about an oil price rebound, this time from today's FT:-

http://www.ft.com/intl/cms/s/0/3c588...44feab7de.html
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