Higher Petronas dividend may constrain its capital allocation

Malaysia's state-owned oil company, Petronas, may face constraints in its capital allocation due to the rising costs of fuel subsidies, according to research house BIMB Securities. With elevated oil prices, the government's demand for a larger dividend from Petronas could limit the company's spending on upstream activities, gas infrastructure, and energy-transition initiatives.

BIMB Securities predicts that Petronas' dividend to the government could reach RM48 billion in 2026, while the government's fuel subsidy bill could increase to RM50 billion, based on Brent crude averaging US$95 per barrel. Currently, Petronas' dividend to the government stands at RM32 billion in 2025, and the fuel subsidy bill is RM30 billion.

The research house anticipates a moderate decrease in Petronas' dividend payout to RM32 billion in 2027 and RM25 billion in 2028, as Brent crude is expected to decline to US$85 per barrel in 2027 and US$75 per barrel in 2028. However, the research house warns that higher oil prices may not significantly improve Malaysia's fiscal position, as refining margins and fuel demand remain resilient, pushing up the cost of fuel subsidies.