Finance ministry rated the changes in Indonesia Crude Price (ICP) will have an impact to the 2020 State Budget deficit, said the government official on Monday (04/21) - Photo by University of Indonesia

JAKARTA (TheInsiderStories) – Finance ministry rated the changes in Indonesia Crude Price (ICP) will have an impact to the 2020 State Budget deficit, said the government official on Monday (04/21). As known, the global oil prices fell to lowest level in decades amid the COVID-19 outbreak.

“If the prices continue to decline and the ICP becomes to US$30.9 per barrel, the deficit is estimated to increase by Rp12.2 trillion ($787.10 million),” said head of fiscal policy agency at the finance ministry Febrio Nathan Kacaribu in its official statement.

He continued, “The government continues to monitor for anticipatory policies including controlling deficits, one of which is through evaluating non-productive spending, and taking mitigation measures to maintain fiscal sustainability and economic growth.”

As reported, world crude oil prices have declined since the begining of the year due to the global economic activity affected by the escalation of COVID-19 outbreak. Prices continue to decline since Monday, (04/13), mainly West Texas Intermediate (WTI), are caused by declining global demand and negative sentiment emanating from  projections of contractive global economic growth.

Today, the price of the WTI contract in May is at a negative level (briefly minus $37 a barrel). Producers must immediately hand over stock to consumers because of storage factors limited.

However, Kacaribu expect the situation to have a short term impact, given the selling price of WTI contracts in June is still around $20 per barrel. While, the price of ICP is currently slightly above the price of Brent oil.

Responding on the oil prices development, the ministry of energy and mineral resources (MEMR) claimed was monitor the situation and the impact to the country’ energy sectors.

“Regarding fuel prices, the government is currently still observing and evaluating the developments, including OPEC+ planned to cut the oil production starting next month. Currently, the ICP price is still one of the cheapest in Southeast Asia and several other countries in the world,” said the ministry on Monday (04/20).

Another consideration is that the weakened Rupiah and low fuel consumption in several cities such as Jakarta, which has decreased by 50 percent. During this time, the government supports the provision of subsidies and compensation for fuel prices with an ever-increasing amount caused by high oil prices compared to the domestic selling price.

Since early March, there was an oil conflict between Organization Petroleum Export Countries and its allies (OPEC+), causing an indication of oversupply which then triggered a sharp drop in world oil prices. This event coincided with the pandemic which began to emerge since the beginning of 2020.

At the beginning of April the oil cartel had agreed to cut world oil production by 9.7 million barrels per day in May and June 2020 and did not rule out the possibility of being extended. However, the results of these negotiations still have not had the effect of changing oil prices due to decreased demand due to the COVID-19 which caused many countries to implement a lockdown policy and the impact of the weakening global economy.

US$1: Rp15,500

Written by Staff Editor, Email: theinsiderstories@gmail.com