Related Articles
Report
Forward article link
Share PDF with colleagues

Malaysia committed, Brunei could waver

Both have pledged to the cuts, but falling public service subsidies could make Brunei jump ship

Non-Opec members Malaysia and Brunei appear to be sticking to commitments made to reduce production from 1 January. But if no appreciable gains are made in crude prices in the next six months, expect at least one of them to start wavering.

In Brunei, the Energy and Industry Department at the Prime Minister's Office confirmed that it has voluntarily adjusted crude oil production from 1 January 2017 for an initial six months. No information was provided on the volume but it is expected to be around 4,000 barrels a day, compared with production of 200,000 b/d last year.

Brunei's problem is that oil exports are one of the country's sole sources of revenue and subsidise a host of domestic needs including food, medical services, housing, public infrastructure and fuel. Though a small nation by population, any reduction in oil sales has a direct impact on the country's ability to fund domestic spending.

As established fields run down and without any major new discoveries on the horizon, oil production in Brunei has dropped by 40% in the past 10 years. So it needs to make the most of what is left. If the cuts don't yield price gains, its commitment to the deal will droop.

Malaysia is less exposed to oil exports than Brunei but still depends on sales of oil and oil-indexed liquefied natural gas for government revenue. Unlike Brunei, though, it has been attempting to diversify away from oil exports as a buffer against price falls and currency fluctuations. It is building a financial and manufacturing base and has introduced a government service tax in recent years.

Malaysia also has significant proven oil and gas reserves-especially light, sweet crude-and foreign investors are keen to explore. This inward investment should help the country weather the downturn and probably means Malaysia will be less tempted to break its pledge to cut.

In a statement in late December, state firm Petronas confirmed its commitment to withdraw up to 20,000 b/d. Expect these to be carried out throughout the deal's duration and for Malaysia to support an extension to the deal if Opec deems it necessary come June.

PE verdict: Malaysia will stand firm but Brunei's sliding revenue base could make it waver if oil prices stay low

This article is part of a report series on Opec. Next article: Relying on Moscow

Also in this section
Opec's next balancing act
18 September 2018
The oil market is at a crux point as bullish and bearish forces battle to set the tone
Trade war spills over
7 August 2018
US-China tensions likely to prompt shift in crude, LNG flows
Strategy v market dynamics
2 August 2018
Members must consider a host of complex issues as they wrestle with the problem of managing oil supply