Crude Oil

JAKARTA (TheInsiderStories) – Good morning. The price of crude oil soared to US$80 per barrel on fear over supplies after Organization of the Petroleum Exporting Countries and Russia refused demand from the US President Donald Trump to raise output.

Representatives from the oil cartel grouping and other key producing nations met in Algiers on Sunday (23/09) and concluded with any agreement to raise output to fill the output gap from Iran’s economic sanctions.

US economic sanction against Iran, which will be fully implemented in November, is estimated will remove some 1.5 million barrels per day to 2.0 million barrels per day from the global oil supply.

Some analysts and traders had forecast oil price may reach US$90 per barrel by December and $100 per barrel in 2019.

Rising oil price is not a positive development for Indonesia. The widening current account deficit, which leads to market volatility in Indonesia, can be attributed to the deficit in oil and gas trade.

The government has put efforts to reduce imports of oil such as expanding the use of biodiesel and pushing private producers to sell their oil domestically rather than exports. So far, its impact has been minimal especially when global oil price continues to rise.

While, the Rupiah weakened to 14,865 per US$1 from 14,824 per US$1 while the Jakarta Composite Index fell 1.3 per cent to 5,882 despite net buy of stocks worth Rp587 billion by foreign investors.

Pressures on the financial market also came from the news that China has canceled trade talks with the US administration. In addition, China has called off a joint military meeting with the US scheduled for next week.

The development shows that tension between the world’s two largest economies is still escalating and starting to spread to other areas outside trade.

In the mean time, the government planned to lower income tax on interest of government and private bond holdings in order to attract more investors and strengthen the financial market. Domestic investors are currently taxed at 15 per cent for interest returns on government bonds. The government planned to lower the rate to as low as 5 per cent.

Furthermore, Karen Agustiawan, the former chief executive of state owned oil company PT Pertamina, was detained after being named a suspect in an alleged corruption case involving the company’s purchase of oil block in Australia in 2009.

The Attorney General Office accused Agustiawan of not following the proper procedure in the asset purchase, which worth $31 million at the time. Furthermore, the block failed to yield the expected output and production activity was completely stopped in 2010.

Experts saw the case as merely a business decision went wrong and did not entail an attempt of personal enrichment. It could also set a negative precedent that would discourage state owned companies executives to make a business decision.

May you have a profitable day.

TIS Intelligence Team, Email: theinsiderstories@gmail.com

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