Mahathir Discounts OPEC Clout

The Organization of the Petroleum Exporting Countries hasn't been effective in stabilizing oil prices, which have been more dependent on US shale production than the actions of the intergovernmental group, said Malaysian Prime Minister Mahathir Mohammad.

"OPEC is not effective. They are always at loggerheads with each other so they cannot make a decision," Mahathir told CNBC in a Monday interview.

The Malaysian leader was asked whether the group should take further action to stabilize oil prices.

"What is more important is the production of shale oil from America," he added.

Those comments by the Malaysian leader came less than a month before OPEC and non-OPEC members are scheduled to meet in Vienna, Austria to vote on their next policy decision. Those major oil producers began cutting production in January 2017 to drain a global crude glut that sent oil prices from over $100 per barrel to under $30.

Malaysia is an oil producing country. Consequently, analysts at Fitch recently said a decline in oil prices will undermine the country's effort to cut its debt given its dependence oil revenue. But Mahathir said Malaysia's economy is more diversified than what's commonly thought.

"We are not dependent on oil revenue. You see, we are a small producer of oil, 600,000 barrels a day — nothing compared to countries like Saudi, which is entirely dependent upon oil revenue," said the prime minister.

"We have other sources of revenue: We produce a lot of palm oil, which used to fetch quite good prices. We also have 82% of our exports made up of manufactured goods. So how can you say we are dependent upon oil revenue? It is not," he added.

The comments by Fitch analysts were made after Malaysia said earlier this month it plans to cut its fiscal shortfall to 3.4% of gross domestic product in 2019—down from the projected 3.7% this year. Fitch said the country is "at the mercy of the markets" given its oil businesses, and because of that, the agency is "cautious" that Malaysia would achieve its goal in cutting the budget deficit.

source: Financial Tribune