Moody’s: Rising Energy Prices Set to Boost Petronas Upstream Profits, Subsidy Costs Remain Fiscal Risk
KUALA LUMPUR — Global credit rating agency Moody’s Ratings expects Petroliam Nasional Bhd (Petronas) to benefit from elevated global energy prices, with the national oil company’s upstream operations likely to record stronger earnings amid continuing volatility in international oil markets.
In a statement released today, Moody’s said higher oil and gas prices would significantly strengthen revenue from Petronas’ upstream segment, which historically contributes the largest share of the company’s total profits.
The rating agency noted that robust petroleum-related revenue provides an important financial buffer for the company when global energy markets experience fluctuations.
“Petronas’ upstream segment has traditionally accounted for the majority of the group’s profits,” Moody’s said.
The agency also highlighted that Petronas has allocated RM20 billion in dividend payments for 2026, although the final amount could rise if the company’s earnings outperform current expectations.
Such dividends play a significant role in Malaysia’s fiscal position because Petronas remains one of the largest contributors to government revenue.
Energy Prices Strengthen National Oil Revenues
The outlook from Moody’s reflects broader developments in global energy markets where oil and gas prices remain relatively elevated due to geopolitical uncertainties and supply constraints.
For energy-producing countries such as Malaysia, higher global prices can translate into stronger earnings from national oil companies and higher government revenue through dividends and taxes.
Petronas’ upstream operations — which involve exploration and production of oil and gas — are particularly sensitive to global price movements.
When energy prices increase, the profitability of these upstream activities generally improves, strengthening the company’s financial performance.
However, Moody’s cautioned that global oil price volatility remains a factor that could influence the company’s future earnings outlook.
Fuel Subsidies Continue to Shape Fiscal Risks
While higher energy prices can support Petronas’ revenue growth, Moody’s noted that Malaysia’s fuel subsidy framework may present fiscal challenges if energy prices remain elevated for an extended period.
Retail fuel prices for certain petroleum products in Malaysia are regulated by the government to protect consumers from sharp fluctuations in global oil markets.
As a result, the government absorbs part of the cost through fuel subsidies.
According to Moody’s, sustained high energy prices could increase the subsidy burden on public finances.
However, the agency said recent reforms to Malaysia’s subsidy system may help contain the impact.
Over the past two years, the government has moved towards more targeted subsidy mechanisms for petrol and diesel in order to reduce fiscal leakages and ensure assistance reaches those who need it most.
Targeted Subsidies Aim to Reduce Fiscal Pressure
The current subsidy structure includes controlled pricing for RON95 petrol, which is sold to eligible Malaysian citizens at RM1.99 per litre.
The policy includes a monthly usage limit of 300 litres per individual, aimed at directing subsidies primarily to domestic consumers rather than commercial users.
Diesel pricing is also subject to regulatory controls, although the price caps differ depending on regions and economic sectors.
Moody’s said these targeted subsidy measures could help prevent the government’s subsidy bill from rising sharply even if global oil prices remain high.
By narrowing the scope of fuel subsidies, the government aims to maintain fiscal discipline while continuing to provide support for households and key industries.
Balancing Energy Revenues and Fiscal Sustainability
The agency noted that Malaysia’s fiscal outlook continues to be influenced by the balance between strong energy-sector revenues and the cost of maintaining fuel subsidies.
Petronas’ performance remains closely linked to the country’s broader economic position because the national oil company contributes substantial dividends and revenue to the government.
If global energy prices remain strong, Petronas’ upstream earnings could exceed current projections, potentially allowing for larger dividend payments.
However, Moody’s emphasised that the long-term sustainability of government finances will also depend on managing subsidy costs effectively.
The shift toward targeted subsidies is therefore seen as an important policy adjustment designed to strengthen fiscal resilience while maintaining economic stability.
As global energy markets continue to face uncertainty driven by geopolitical developments and supply disruptions, analysts say Malaysia’s energy sector will remain a key pillar supporting the country’s economic performance.
-wilayah.com.my
