Costlier second shock likely as oil buffer shrinks

 Analysts warn that lower global inventories, a possible return of major buyers such as China and money already committed to securing supplies could leave Malaysia with less room to absorb another disruption.

Analyst Jamil Ghani says higher oil prices should not be viewed as a windfall, as Petronas still needs the financial strength and flexibility to secure alternative supplies when normal routes are disrupted.

PETALING JAYA:

Malaysia is at risk of facing a more expensive second energy shock if another supply disruption hits later this year, analysts say.

They pointed out that global oil reserves have already been drawn down and Petronas has had to spend more to ensure sufficient supply for the country through the first crisis.

Analyst Jamil Ghani said the first disruption was partly cushioned by countries drawing on existing oil stocks, but that buffer has since become thinner.

“There is a real risk of another price shock, but I would not say a second winter energy crisis is inevitable or the most likely outcome at this stage,” he told FMT.

Jamil Ghani.

“The main concern is that some of the oil stocks that helped cushion the first shock have already been used.”

He cited estimates by the International Energy Agency that global oil inventories have fallen by about 410 million barrels since the start of the war.

“There is less room for another major disruption. If colder weather and higher seasonal demand coincide with another supply shock, prices could rise much more sharply because there are fewer reserves available to cushion the impact.”

The analyst said a further squeeze could emerge once major consumers begin relying less on inventories and return to the market for fresh supplies.

China, for example, was estimated by the US Energy Information Administration to hold about 1.49 billion barrels in strategic oil inventories at the end of the second quarter of 2026.

“Based on available estimates, China’s reserves are not close to depletion,” he said.

“But the pressure begins before inventories are exhausted. As countries reduce the amount they draw from storage, they have to buy more current supply. If they later rebuild those stocks, they create additional demand on top of normal consumption.”

That means another shock could hit from two directions at once: less oil sitting in reserve to cushion a disruption, and more buyers returning to the market for fresh supply.

“If large buyers return aggressively to the market, competition for crude, refined products, tankers and delivery slots increases — and so does the cost of securing supply,” he said.

Tighter Petronas constraints

The risk comes as Petronas itself enters the second half of the year after already having deployed more cash and resources to protect Malaysia’s energy supply. Another disruption would not hit a fresh balance sheet.

Petronas’s first-half results show that the national oil company diverted crude supplies away from the Strait of Hormuz, secured alternative LNG supplies and committed to new infrastructure aimed at strengthening the country’s ability to withstand future disruptions.

The national oil company bought out Aramco’s stake in the Pengerang Refining Company Sdn Bhd and Pengerang Petrochemical Company Sdn Bhd this year in order to support Malaysia’s energy security.

It also signed an agreement with QatarEnergy to take two million tonnes of LNG a year from 2028 to strengthen long-term supply for Peninsular Malaysia, while approving the development of a third regasification terminal in Lumut to give the peninsula more flexibility in bringing in LNG.

Petronas has also continued investing in exploration and new production in Malaysia, saying such spending was needed to strengthen future energy resilience and sustain resources over the longer term.

Those measures have translated into more cash being tied up in the business.

Petronas recorded RM47.5 billion in operating cash flow for the first six months of the year, slightly lower than a year earlier because of working-capital outflows. Its assets also reflected higher receivables and inventories, while cash and cash equivalents were lower.

Jamil said this was why higher oil prices should not automatically be viewed as an easy gain for Petronas. He said keeping Malaysia supplied during the current crisis had already required Petronas to put substantial financial resources to work, even though there was no single figure showing the total cost of doing so.

“Energy security is costly even when consumers do not experience an actual shortage. Petronas has to finance alternative supplies, higher logistics costs, inventories and working capital, while continuing to invest in production and infrastructure.”

Petronas’s revenue rose 15% to RM152.4 billion in the first half of 2026, but profit after tax increased by only 4% to RM27.2 billion.

“So higher oil prices should not simply be seen as a windfall. Keeping Malaysia supplied requires Petronas to have the financial capacity and operational flexibility to secure alternative supplies when normal supply routes are disrupted.”

Jamil said the distinction between Petronas making a profit and having cash readily available for distribution was therefore important.

Petronas still needed cash to run its operations, buy crude oil and LNG, maintain fuel stocks, invest in new projects and infrastructure, and meet debt obligations, he said.

“There is no simple figure for how much Petronas needs to keep. That depends on how much it must spend on future investments, fuel purchases, debt repayments and how large a financial buffer it needs in case another disruption occurs.”

The analyst said this meant Malaysia should not look only at Petronas’s headline profit when assessing how prepared it is for another energy shock.

“The question is not simply how much profit Petronas makes, but how much can safely be paid out without weakening its ability to keep Malaysia supplied and respond to the next energy shock,” Jamil added. - FMT