This article first appeared in The Edge Financial Daily on December 4, 2018 - December 10, 2018

KUALA LUMPUR: Malaysia will announce at the Opec and Non-Opec ministerial meeting in Vienna, Austria on Thursday whether it is extending its oil production cuts beyond 2018.

Economic Affairs Minister Datuk Seri Mohamed Azmin Ali, who is attending the meeting, said Malaysia is floating the idea of formalising the oil cut pledge among both Opec and non-Opec countries. “We are going to discuss whether we want to keep that understanding, or alleviate that understanding to a more formal type of cooperation,” Mohamed Azmin told reporters at the Parliament lobby yesterday.

The ministerial meeting is held bi-annually for oil producing countries to discuss steps to stabilise the oil price. Such steps — including production cuts — have helped the Brent crude oil price futures to gradually increase from under US$50 a barrel in 2016 to above US$80 (RM333.22) in October 2018.

However, prices fell back to below US$60 last week amid an emerging supply glut following a global surge in production in oil heavyweight countries such as the US, Russia and West Asian nations. Malaysia, a non-Opec country, had previously pledged to extend its oil production cut by 20,000 barrels per day until Dec 31, 2018.

The issue of oil prices is now particularly important for Malaysia, which has indirectly increased its dependency on oil revenue, having terminated the goods and services tax in favour of a return of the sales and service tax — a step that pundits expect would reduce the government’s tax revenue by some RM20 billion. Budget 2019 has assumed the oil price at an average of US$70 a barrel in 2019. When asked whether the government has to recalibrate Budget 2019 at the current oil price levels, Mohamed Azmin said, “I do not want to jump into conclusions”.