PETALING JAYA: Crude oil prices are expected to remain elevated at between US$77 (RM319) and US$107 (RM443) a barrel until sometime next year amid the shortfall in the supply of the commodity.

       The strong price of crude would bode well for the ringgit as Malaysia is a net exporter of the commodity, hence strengthening the local currency and improving the government’s fiscal position albeit the build up of inflationary pressures.

       Economists and industry observers agree there would be upward pressure on oil prices going into 2022 due to, among others, the depletion of coal reserves, production cuts and geopolitical risk.

       Juwai IQI global chief economist Shan Saeed told StarBiz he expects oil prices to head north moving into 2022.

       “Oil prices will meander around US$77 (RM319) to US$107 (RM443) per barrel by next year, based on the premise that demand will outpace supply due to a lot of supply disruptions in the energy market.

       “We could foresee a repeat of 2008 when oil was trading at US$147.23 (RM610) per barrel on July 11 of that year.

       “Oil prices have gone up from US$37 (RM153) a barrel to over US$86 (RM356) in just 19 months. It’s quite a turnaround, almost a 71% increase year-to-date.”

       He said oil market is in a backward phase as the spot price is higher than future price, noting that there is a supply shortage of 1.5 million to 2 million barrels in the market.

       Furthermore, Shan said geopolitical risk is getting deeper into the energy market, adding that Saudi Arabia and Russia are calling the shots and the Organisation of Petroleum Exporting Countries (Opec) remain relevant in the global market.

       As at press time, Brent crude, the international benchmark, was trading at US$84.38 (RM349.33) per barrel.

       AmBank Group chief economist and member of the Economic Action Council Secretariat Anthony Dass said the upside to crude oil price remains strong, moving forward.

       For 2021, crude oil price is likely to settle around US$68-US$71 (RM282-RM294) per barrel.

       Looking into 2022, he said oil price is expected to move higher to around US$77-US$80 (RMRM319-RM331) per barrel, driven by a continued recovery in demand that would widen the “persistent” supply shortfall.

       Besides, he said, at the moment the Opec+ is not seeing US$80 (RM331) per barrel as a ceiling. So, it is less likely for it to cool prices in the near term.

       This means Opec+ would prefer to have a higher floor price than previously thought, he said.

       “Furthermore, there is limited market share threat from the US production growth. This means there is no urgency for Opec+ producers to step on the gas.

       “In short, Opec+ is not overly concerned about the current price trend driven by the demand effects.

       “And that reflects as to why the Opec+ ministers have not challenged the market narrative which assumes tight balances and lack of spare capacity as a result of prices to remain elevated for a longer period,” Dass said.

       Malaysian Institute of Economic Research (Mier) head of research Shankaran Nambiar expects oil prices for next year to range from US$77 (RM319) per barrel to US$90 (RM373) as the shortfall in supply is likely to run into the first half of 2022.

       He said there are several factors that add upward pressure on oil prices, adding that there is less confidence that the United States-Iran nuclear deal would come off with a satisfactory resolution.

       “Coal prices are at a record high with the rains and floods in China. Indonesia is also affected by rains, affecting production. Russia and Mongolia have logistics issues creating constraints for the timely delivery of coal supplies.

       “The call to stop investing in hydrocarbon supplies is neither wise nor timely at this point. Going green and switching to alternative sources of energy is definitely a long-term priority.

       “But depressing traditional sources of energy at a time when there are supply constraints will only create higher energy prices and this may persist for a couple of years, if not well managed,” Nambiar noted.

       Renato Lima-de-Oliveira, an assistant professor of business and society at Asia School of Business and a fellow of the Centre for Market Education, said this year has been a positive year for oil companies after a disastrous 2020.

       He said it is likely that 2022 would be even better, with the full recovery of production beyond pre-pandemic levels or above 100 million barrels per day.

       But in the medium to long term, he said crude oil is still a sunset business as the world renews the calls to decarbonise by 2050 or earlier in order to deal with climate change.

       He noted that many countries are facing an energy crisis now like Brazil, China and the UK.

       “The core of the problem is that investments in fossil fuels are going down because of the push to decarbonise the economy and their lower long-term growth prospects in a net-zero emissions world but renewables are not yet mature enough to fully replace them.

       “This is the time to put in place policies that are aligned with this emerging energy economy and are resilient to the climate challenge we face.

       “In particular, the aspiration to be net zero by 2050, as expressed in the 12th Malaysia Plan, is a start but it needs to be followed up soon with a concrete roadmap to boost investments in green economy,” Renato said.

       Meanwhile, Socio-Economic Research Centre executive director Lee Heng Guie expects crude oil price to average US$71 (RM294) per barrel in 2021 and US$68 (RM282) in 2022.

       He said the market’s narrative now is that Opec+ is seemingly comfortable with the current level of oil price and would stay with its plan for gradual additional production, rather than offering more supply to the market to cool prices in the short term.

       However, he said concerns over higher energy prices along with other raw materials could stir consumer inflation and hence, slow down consumer spending and temper global recovery post-Covid-19 pandemic.

       “This will reduce demand for oil. On the supply side, Opec+ may decide to ramp up production to help soften the high oil prices.

       “The reduction of market liquidity due to the tapering of the Federal Reserve’s assets purchase and the normalisation of interest rates may reduce speculative buying in the oil market,” Lee said.

       On the ringgit, Shan expects the currency to bounce back stronger against the US dollar in 2022, underpinned by higher commodities prices and solid foreign direct investment inflows into the economy.

       He expects the ringgit to trade around 3.65 to 4.10 to the US dollar by next year.

       He said Bank Negara would continue to consolidate foreign exchange buffers to withstand currency volatility in the global financial markets.

       The central bank would be able to meet its mandate of price and growth stability target for next year, he noted.

       Dass said higher crude prices would bode well for the local currency besides strengthening the government’s fiscal position.

       “A 1% increase in oil prices also results in a 0.04% increase in the stock market index and 0.03% appreciation of the ringgit the next day.

       “On aggregate, using monthly data, the local currency is expected to appreciate by 0.45% from the appreciation of oil price by 10%,” he said.

       Nambiar said that on the flip side, the high price of oil may steer the global economy to slip into a regime of stagflation. That, in turn, would not help propel a quick recovery for the Malaysian economy.