Oil and Gas Sector on Balance of Payments of Brunei Darussalam

Abstract

Empirical studies show that oil price is an important determinant of trade balance of oil exporting and importing countries. In this study we examine the relationship for Brunei Darussalam, using combined oil and gas price, instead of oil price only. The justification for combining oil and gas (LNG) price into a single measure is LNG exports are larger than crude oil exports of Brunei in recent years, and on average, crude oil export is 50 percent and LNG export is also 50 percent since 1991. Using a combined oil and gas price a single equation regression model is tested with Brunei data for the period 1991 to 2017. pecifically, we regress trade balance on the combined oil and gas price variable. The results show that combined oil and gas price has a sizeable impact on the trade balance of Brunei. A one percent increase in the oil and gas price causes the trade surplus to rise by more than 1 percent (1.3332%). These results suggest some policy implications for policy makers of Brunei to reduce effects of lower oil and gas prices.