This has set off a price war between two oil-producing giants, namely Saudi Arabia and Russia.
The cataclysmic collapse dragged the benchmark stock market index, FTSE Bursa Malaysia KLCI, to close broadly lower on Monday by 58.94 points or 3.97 per cent to 1,424.16 from Friday’s close of 1,483.10.
More than RM70 billion (US$1=RM4.23) was wiped out from Bursa Malaysia due to the oil crash as well as the spread of COVID-19 outside China with more than 90 countries being affected by the outbreak.
As of March 9, the Health Ministry confirmed 18 new positive cases of Covid-19, bringing the tally to 117 in the country.
While some argue that the stock market is not a reflection of the economy, one cannot not brush off the lingering effects of the “double trouble” (Covid19 and weak oil prices) to the nation’s growth.
Malaysia is still largely dependent on oil price and production for its fiscal balance.
Petroleum income is made up of an estimated 20 per cent of the country’s total revenue and every US$10 fall in oil price cuts the government revenue by some RM7 billion.
Kenanga Research noted that Budget 2020 deficit could widen to 4.3 per cent from 3.4 per cent in 2019 should Brent crude average at US$40 per barrel this year.
The oil war added a downside factor on crude oil prices and a plunge in global oil would suppress Malaysia’s fiscal capacity given that the Budget 2020 is based on the assumption of US$62 per barrel.
Brent crude price has recovered slightly since Monday to US$36.84 per barrel at midafternoon yesterday.
The Covid-19 outbreak affects negatively the demand side while the oil war is putting pressure on the supply side.
Inheriting the country in a tough economic climate, all eyes are now on Prime Minister Tan Sri Muhyiddin Yassin in the first 100 days as this period is crucial for the new premier in prioritising the right initiatives that would help him steer the country in the right direction.