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23253
Wed, 10/08/2008 - 15:25
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https://oananews.org//node/23253
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News Focus: CRUDE PRICE MAY FALL TO US$70 PER BARREL, OBSERVERS WARN By Andi Abdussalam
Jakarta, Oct 8 (ANTARA) - Government officials say the on-going global financial turbulence will unlikely affect Indonesia's oil exports and investment in the energy sector but observers warn it may push down crude prices to US$70 a barrel at the end of the year, cutting state revenues from oil by Rp30 trillion.
"The current global financial crisis will push down world demand for oil and gas. Thus, crude oil prices in the world market may fall to US$70 a barrel at the end of this year," oil and gas industry observer Pri Agung Rakhmanto said on Tuesday.
Crude prices had dropped to US$90 a barrel following fear that the financial crisis in the United States would spread to other countries even though the US government had provided a US$700 bailout package for collapsed financial institutions.
The price of 'light-sweet' oil in main contract trading in New York on Monday, October 6, fell to US$87.81 per barrel for November shipment, and in London, the price of "Brent North Sea" dropped to US$83.68 per barrel.
The world oil price had dropped by about 40 percent since it reached the record high level of US$ 147 per barrel last July.
In Indonesia's amended 2008 state budget the assumed oil price was set at US$95 per barrel and the same figure was used in the draft 2009 state budget.
Government officials however predict that the world financial turmoil is unlikely to seriously affect Indonesia's oil investment and exports.
The Upstream Oil and Gas Regulating Body (BP Migas) Deputy Head Abdul Muin said that most of gas and oil investment activities in Indonesia were made by big companies which had their own capital.
"They are not affected by the current global financial crisis. After all they have enjoyed windfall profits from skyrocketing of the world crude prices," he said.
Energy and Mineral Resources Minister Purnomo Yusgiantoro also expressed optimism that the U.S. financial crisis would not disturb Indonesia's exports of products from the energy and mining sector.
"We think that our exports would not be disturbed because our exports, particularly oil, gas, liquefied national gas and mining products, are always needed by importer countries," the minister said.
In the meantime, investment on the energy and mining sector remained safe now because investment is made in the long-term form.
"The investment is made in the form of foreign direct investment (FDI). We don't use money from the capital market and the stocks exchange. So, we hope that the turbulence in the United State would not disturb us," he said.
According to Abdul Muin, only a small portion of investment in the oil and gas sector was made by small companies which relied on loans so that their investment were likely to be affected in the long run.
"The number of these companies operating in Indonesia is small," he added.
Even though oil exports and investment are unlikely to be hit hard by the world economic crisis, observers feared oil prices would drop significantly.
Pri Agung Rakhmanto, who is also executive director of ReforMiner Institute, said a decline in demand for oil would be a fundamental factor in the downward spiral of crude oil prices.
The global economy would slow down and grow only 3.6 percent, he added. "If investors and speculative buyers stay in a wait-and-see position for a relatively long time, the price of oil will drop to a range between US$70 and US$80 per barrel at the end of the year," he said.
Another oil observer, Kurtubi, concurred with Rakhmanto, saying crude prices would continue to slide until US$70 per barrel if oil production is not reduced by up to 1.5 million barrels per day.
He said if the Organization of Petroleum Exporting Countries (OPEC) cut its production by 1.5 million barrels per day and the US dollar weakened, the oil prices would, however, return to US$120 per barrel.
He said the strengthening of the US dollar against the euro would also help drive down oil prices. "So, although there would be an upward trend in oil consumption in the run up to the winter season, the oil price will remain under pressure," he added.
So, according to Rakhmanto, if the oil price dropped to an average of US$85 per barrel in 2008, Indonesia's oil and gas revenues would drop by Rp30 trillion to Rp211 trillion.
Yet, Minister Yusgiantoro said that the Indonesian Crude Oil Price (ICP) was now US$110 per barrel. An average level below US$100 per barrel will only be possible if the prices of Indonesian crude continue to stay below the US$70 level in October-December period.
After all, a decline in oil prices has a positive aspect for Indonesia. "The declining prices as a result of the global financial crisis will be an advantage since it will put a brake on inflation and reduce the government's subsidy burden," Airlangga Hartarto, chairman of the House of Representatives (DPR)'s Energy Commission, said.
"The current global financial crisis will push down world demand for oil and gas. Thus, crude oil prices in the world market may fall to US$70 a barrel at the end of this year," oil and gas industry observer Pri Agung Rakhmanto said on Tuesday.
Crude prices had dropped to US$90 a barrel following fear that the financial crisis in the United States would spread to other countries even though the US government had provided a US$700 bailout package for collapsed financial institutions.
The price of 'light-sweet' oil in main contract trading in New York on Monday, October 6, fell to US$87.81 per barrel for November shipment, and in London, the price of "Brent North Sea" dropped to US$83.68 per barrel.
The world oil price had dropped by about 40 percent since it reached the record high level of US$ 147 per barrel last July.
In Indonesia's amended 2008 state budget the assumed oil price was set at US$95 per barrel and the same figure was used in the draft 2009 state budget.
Government officials however predict that the world financial turmoil is unlikely to seriously affect Indonesia's oil investment and exports.
The Upstream Oil and Gas Regulating Body (BP Migas) Deputy Head Abdul Muin said that most of gas and oil investment activities in Indonesia were made by big companies which had their own capital.
"They are not affected by the current global financial crisis. After all they have enjoyed windfall profits from skyrocketing of the world crude prices," he said.
Energy and Mineral Resources Minister Purnomo Yusgiantoro also expressed optimism that the U.S. financial crisis would not disturb Indonesia's exports of products from the energy and mining sector.
"We think that our exports would not be disturbed because our exports, particularly oil, gas, liquefied national gas and mining products, are always needed by importer countries," the minister said.
In the meantime, investment on the energy and mining sector remained safe now because investment is made in the long-term form.
"The investment is made in the form of foreign direct investment (FDI). We don't use money from the capital market and the stocks exchange. So, we hope that the turbulence in the United State would not disturb us," he said.
According to Abdul Muin, only a small portion of investment in the oil and gas sector was made by small companies which relied on loans so that their investment were likely to be affected in the long run.
"The number of these companies operating in Indonesia is small," he added.
Even though oil exports and investment are unlikely to be hit hard by the world economic crisis, observers feared oil prices would drop significantly.
Pri Agung Rakhmanto, who is also executive director of ReforMiner Institute, said a decline in demand for oil would be a fundamental factor in the downward spiral of crude oil prices.
The global economy would slow down and grow only 3.6 percent, he added. "If investors and speculative buyers stay in a wait-and-see position for a relatively long time, the price of oil will drop to a range between US$70 and US$80 per barrel at the end of the year," he said.
Another oil observer, Kurtubi, concurred with Rakhmanto, saying crude prices would continue to slide until US$70 per barrel if oil production is not reduced by up to 1.5 million barrels per day.
He said if the Organization of Petroleum Exporting Countries (OPEC) cut its production by 1.5 million barrels per day and the US dollar weakened, the oil prices would, however, return to US$120 per barrel.
He said the strengthening of the US dollar against the euro would also help drive down oil prices. "So, although there would be an upward trend in oil consumption in the run up to the winter season, the oil price will remain under pressure," he added.
So, according to Rakhmanto, if the oil price dropped to an average of US$85 per barrel in 2008, Indonesia's oil and gas revenues would drop by Rp30 trillion to Rp211 trillion.
Yet, Minister Yusgiantoro said that the Indonesian Crude Oil Price (ICP) was now US$110 per barrel. An average level below US$100 per barrel will only be possible if the prices of Indonesian crude continue to stay below the US$70 level in October-December period.
After all, a decline in oil prices has a positive aspect for Indonesia. "The declining prices as a result of the global financial crisis will be an advantage since it will put a brake on inflation and reduce the government's subsidy burden," Airlangga Hartarto, chairman of the House of Representatives (DPR)'s Energy Commission, said.
