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Wednesday, June 29, 2016

July Prediction of Pump Oil Price (Ron 95)

**It is easier to predict the direction of fuel price than to estimate amount of swing of fuel price due to the government REFUSING to disclose the exact compute mechanism.**

This is the 11th time I'm posting my prediction in a blog posting. Please bare that I will repeat some lines for new readers :) Also I always care to post my predictions before any official news or other analysts have given their views (typically too late after the queue starts at the stations).

Why is this sort of important? Say every month you know ahead of official price announcement and let's assume there is a price swing on average of 10 sen per month and you can fill in 35 litres. 0.10 x 35 x 12 = RM 42 savings a year. Obviously you don't feel it's a lot but every year you will always call and beg for credit card waiver of RM50 on govt service charge? Ironic isn't it? :) My total savings for 2015 is: RM 50.75 and YTD: RM 1.75.

June 2016
Oil prices edged up due to potential oil workers strike in Norway (biggest North Sea producer) as well as a crisis in Venezuela's oil sector - power outages and equipment shortages. There are also concerns that a looming refined products glut, especially in Asia, might spill back into the crude market as refiners cut output. Overall oil is projected to be in the $45-$55 range for some time.

Brexit caused a bloodbath in financial markets and rattled Emerging Market currencies (including Malaysia) that have some vulnerability as the UK votes to exit from EU. Investors dump risky assets to go into safe-haven ones such as US treasuries, Japanese government bonds, German bunds and gold. Based on past experience, Bank Negara will be reluctant to intervene so Ringgit will stay weaken for now.

Some asked why did the price of crude oil drop in 2015?
- Strong US dollar; all commodities are priced in dollar and that includes oil.
- Organization of Petroleum Exporting Countries (OPEC); refuses to cut production in order to maintain market share.
- Oversupply of crude oil; thanks largely to US shale oil producers which is now the world's biggest swing producers.
- Declining demand; world's no.2 economy China is slowing.
- Iran nuclear deal; removes Western sanctions and thus allowing country to export oil once again.
- Successful Paris climate change breakthrough talks; marks the beginning of the end of the fossil fuel age.

How come our pump fuel price did not drastically drop in 2015? 
- This is primarily due to weakening MYR to the USD.

Aboi's July'16 Prediction Analysis

RM/L between May and June weaken: 1.61 vs 1.72. Average oil price jumped from $47.43 to $50.28 (6.00%) and MYR didn't really outshine as well (4.04 -> 4.08) a tiny weakening of 1.0%. Aboi's 1% was right last month. All the trash talk about automatic price mechanism.. politics still trump everything else.

However the honeymoon period is gone, my verdict by computation is clear, I will predict that fuel price to be increased by up to 30 sen to RM2.00 for RON95. The government has never increased fuel price at this magnitude before so I think 20 sen is a bet fair. Please fill your tank as soon as possible before the ensuing mayhem tomorrow evening.

Below is a table of my previous predictions way back to the beginning of 2015. My predictions are based on Tapis crude oil price, performance of Ringgit (added after Mar) & domestic politics (which was added after May). My total savings to date: RM 50.75. As for YTD: RM 1.75.

**It is easier to predict the direction of fuel price than to estimate amount of swing of fuel price due to the government REFUSING to disclose the exact compute mechanism.**