The Messy Trade of Oil

Crude oil price had been crazily fluctuating in the past year. Reaching a record high of $147 in June/July, it is now only hovering around $70 per barrel. Safe to say, the price back in June was definitely not driven by market forces, but instead, by speculations.

Also a few months back, the gov decided to price petrol on a floating basis thus increasing petrol prices by 78 cents, and give a fuel rebate of RM600 per vehicle. The decision was made in anticipation that crude oil prices will remain high and that the gov will not be able to sustain the fuel subsidy. That assumption, based on today’s figures, is of course wrong.

Since the 78 cents increment, we’ve seen 3 price reductions which in total, have reduced the price by 40 cents. The reduction was in line with the reduction in global prices.

Will we see a further reduction in petrol prices? Quite unlikely, based on 2 reasons.

Firstly, it is likely that OPEC will decrease production to stabilize prices. Doubt they’ll let the price to slip below $65.

Second, the current global financial turmoil will end sooner or later. Market sentiments are currently uncertain, but as things stabilize, life will be back to normal again.

It is hence pretty unlikely that crude oil prices will continue to drop beyond $65.

But in whichever consequences, the crude oil market will remain volatile. And such a characteristic is definitely ain’t good for business.

Not forgetting, the gov still has the RM600 rebate mess to administer and maintain, which in the first place is a messy and ineffective move.