Impact of O&G to other industries

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The crude oil prices slump is not just a matter of less funds going into the government coffers in the forms of taxes or dividends in the case of national oil companies like Petronas, it also has ripple effect that impact on other industries, and ultimately the economy overall.

In Malaysia, the squeeze felt by those in the O&G industry is not universally felt by those outside of the industry.

It may not be as pronounced in Malaysia, as Petronas seemed to have been in a position that allows it to minimise the impact to the Malaysian public, although it may not able to continue to do so for much longer.

“In South and Southeast Asia, we note that rating agencies remain relatively sanguine on Malaysia (primarily Petronas (5183.MY)) despite lower oil prices. In particular, S&P said in August 2015 that Malaysian companies have the ability to sell assets, cut dividends and reduce investment to meet obligations. For Indonesia and India, Pertamina and ONGC (respectively) have been downgraded by S&P (26 January 2016) with lower oil prices said to weaken their cash flow adequacy and leverage ratios.” source Barron’s.

However, elsewhere, the impact is being more widely felt.

USA Today reported last week that the continuing oil slump is beginning to affect other industries and not just the energy industry.

“The unrelenting slide in oil prices is rippling to the broader economy as the industry’s downturn squeezes sectors as diverse as airlines and restaurants, steelmakers and law firms.

The U.S. crude benchmark price rose 4 cents Wednesday to close at $30.48 a barrel but has fallen about 18% so far this year after plummeting in 2015 and is close to 12-year lows. The crash has led oil producers to sharply scale back drilling and cut jobs. The bloodletting has translated into hundreds of thousands of payroll losses across the labor market and cut about a half a percentage point off economic growth the past year, according to Moody’s Analytics.” source USA Today.

This report from Yale Insights seem to provide an idea of how academicians in their network view the oil slump will impact, or not, their respective countries.

 

 

 

 

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