JAKARTA (TheInsiderStories) – Crude oil price rally continued, after oil stocks in the United States fell significantly after dropped last week over concerns of rising global supplies, as well as Saudi Arabia and other major producers hinted at plans to increase production.
This morning, the price of West Texas Intermediate (WTI) crude for July delivery in U.S’s New York Mercantile Exchange (Nymex) closed up 0.42 percent to US$66.64 per barrel. In the Asian market, WTI oil price continued to rally at the level of $66.67 a barrel.
Oil price gains supported an Energy Information Administration (EIA) report that reported U.S oil stocks slumped 4.14 million barrels per week ago. This is the biggest decline since March 30 last.
On the other hand, Organization of the Petroleum Exporting Countries (OPEC) members’ stance is split over plans to increase production. Saudi Arabia as head of OPEC intends to increase production, while Iran wants the group to maintain a deal on production cuts. OPEC members are scheduled to meet later this month in Vienna to discuss a production deal.
Previously, oil prices lost power because Saudi Arabia and Russia signaled to boost oil production. This is done to offset the potential decline of production from Iran and Venezuela. EIA estimates that the production of both countries could fall by 30 percent this year due to US sanctions and the economic crisis.
OPEC and some non-OPEC producers, including Russia, began to hold production in 2017 to reduce oversupply. Since then prices have risen by about 60 percent over the past year.
The prospects for the oil market in the second half of the year are uncertain, analysts said, and OPEC believes there is a risk of falling demand.
“More oil supply from OPEC plus is a basic case. Saudi Arabia and Russia have started to increase production. Unofficial sources say Russia will propose returning production back to October 2016 levels,” said Bjarne Schieldrop, an analyst at Swedish bank SEB.
Lukman Otunuga, an analyst at FXTM brokers, adding higher oil production and more forecasts would damage prices. He said, “The prospect of declining supply restrictions from OPEC-led producers continues to be reflected in depressed overall oil prices.”
Hows the impact to Indonesia? Even though oil price record dropped in recent days, it still far above the 2018’s State budget assumption of $48 per barrel. Finance Minister Sri Mulyani Indrawati earlier said an increase by $1 per barrel in oil price could raise state revenue by Rp1.1 trillion.
However, the oil price rise also brings negative effect to the state budget due to the increase in subsidy budget. It does not only affect the fuel subsidy but also the electricity as many power plants generated by fuel and liquefied petroleum gas (LPG) subsidy.
The government set Rp46.3 trillion (US$3.33 billion) in fuel subsidy in 2018, of which Rp7.8 trillion is for diesel subsidy. The Coordinating Minister for Economics Affairs Darmin Nasution earlier said the government planned to increase subsidy spending in the state budget by Rp10 trillion.