Imminent fuel price rises unlikely

JAKARTA. Indonesians will unlikely see another fuel price increase in the near future as the global oil price is expected to stay low for the whole year. Even if the oil price rebounds, it will unlikely reach a record high.

Such a scenario looks viable as the government has introduced a fixed fuel subsidy for diesel and has scrapped the gasoline subsidy.

The policy will make Premium’s price fluctuate with the global oil price and its price adjustment will be made every month. In line with the decline of the oil price, earlier this month the government lowered the price of RON88 gasoline, known as “Premium”, to Rp 7,600 (60 US cents) from the previous Rp 8,500.

Given the ongoing decline in the global oil price, the public will likely see a lower price next month. However, it will also have to pay more if the global oil price starts to increase.

State-owned oil and gas firm PT Pertamina’s director for marketing, Ahmad Bambang, estimated that the oil price would start to crawl up in March as the current price was already too low.

However, he said, it would be unlikely that the price would be higher than US$70 per barrel by the year end.

“Therefore, the gasoline price will also go up. However, it will only increase by around Rp 1,000 [from the current price],” Bambang said.

The oil price plunged around 50 percent last year, the biggest drop since the 2008 financial crisis.

The price is under pressure due to a global supply glut amid the US shale oil boom and other producers’ refusal to cut production as they aim to maintain market shares.

The benchmark Brent crude price for February delivery touched $48.45 per barrel on Monday on the ICE Futures Europe exchange.

Meanwhile, another benchmark, West Texas Intermediate (WTI), also for February delivery, dropped to $47.06 per barrel on the New York Mercantile Exchange.

Analysts have said the price would continue to drop as it had not reached a new equilibrium. Many projects are only economical at $80 per barrel, however, there are projects that remain economical at $40.

In a report, Goldman Sachs Group Inc. said as quoted by Bloomberg that the WTI would be at $41 per barrel while Brent would be at $42 per barrel in three months.

The estimation was based on excess US storage capacity and predicted high inventories over the first half of this year.

The lower crude price may remain if investment in shale is curtailed to re-balance the global market, according to Goldman analysts.

“To keep all capital sidelined and curtail investment in shale until the market has re-balanced, we believe prices need to stay lower for longer. The search for a new equilibrium in the oil markets continues,” the report said.

Indonesian ICP was at $59.56 per barrel in December, dropping by $15.83 per barrel from $75.39 per barrel in November.

Currently, the domestic fuel price calculation is based on an average price recorded on the 25th day of the two previous months, until the 24th day of the previous month.

Energy and Mineral Resources Ministry director general for oil and gas Naryanto Wagimin said the government would likely consider the upper limit of the gasoline price at Rp 9,500 to anticipate future jumps in the oil price. The plan was denied by the Coordinating Economic Minister Sofyan Djalil. (Raras Cahyafitri)