Falling Oil Prices Ease Inflation Concerns For Malaysia And Global Economy
By Fatin Umairah Abdul Hamid
KUALA LUMPUR, June 25 (Bernama) -- Falling crude oil prices are expected to ease inflationary pressures in Malaysia and globally, reducing concerns that central banks may need to keep interest rates higher for longer, economists said.
US West Texas Intermediate (WTI) crude oil prices fell below US$70 per barrel, and Brent crude traded just above US$73 on Wednesday, returning to pre-conflict levels as concerns over potential disruptions to global energy supplies from West Asia eased.
The decline comes as oil tankers continue to transit the Strait of Hormuz, a critical shipping route that carries about 20 per cent of the world’s petroleum supply, helping to calm fears of a major supply shock.
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the normalisation of oil prices was a positive development, particularly after fears that prolonged geopolitical tensions could trigger a sustained surge in energy costs.
“The economic shock brought by a sudden spike in crude oil prices would be damaging to the global economy if prolonged. Hence, it should be positive for Malaysia and the global economy,” he told Bernama.
According to Mohd Afzanizam, lower oil prices could help moderate inflation by reducing transportation, logistics and production costs across a wide range of industries.
This would ease pressure on central banks worldwide and potentially reduce the urgency to raise benchmark interest rates further, he added.
Market sentiment has improved in recent days, as concerns over a major disruption to oil shipments through the Strait of Hormuz have eased, helping to stabilise energy markets.
Touching on the oil and gas sector, particularly Petroliam Nasional Bhd (Petronas), Mohd Afzanizam said the current price environment is unlikely to severely impact industry players, as many are already preparing for the energy transition, including towards renewable energy.
Meanwhile, SPI Asset Management's managing partner, Stephen Innes, said Malaysia also stands to benefit from cheaper crude and refined fuel imports, which could lower costs for refiners, transport operators, manufacturers, and consumers.
As for the ringgit, which is currently at RM4.14 against the greenback, he said the local currency may face modest pressure if lower oil prices weaken Malaysia’s terms of trade.
However, broader US dollar movements and foreign portfolio flows are likely to remain more important drivers.
“Lower fuel costs could also ease inflation and support domestic demand, helping offset some of that drag,” he noted.
Regarding the crude palm oil (CPO) market, Mumbai-based Sunvin Group head of research Anilkumar Bagani said the sharp drop in fossil fuel prices has made biodiesel less attractive. At the same time, the wider vegetable oil premium over gas oil has also increased the subsidies required to maintain mandated blending levels.
He said CPO prices could drift further towards the next support range of US$63 to US$61 per barrel if selling pressure in oil persists, moving away from previous forecasts that Brent crude prices would average US$85 per barrel in the second half of 2026 and US$80 per barrel in the first half of 2027.
-- BERNAMA