Oil prices in budget optimistic: Analysts
Oil prices in budget optimistic: Analysts
SINGAPORE (Reuters): Indonesia's one dollar cut in the oil
price used in the budget leaves it at a still optimistic level
when oil revenues are likely to be hit anyway, analysts said
yesterday.
They said Indonesia's decision to cut oil production by 70,000
barrels per day (bpd) as part of a global pact to shore up prices
would hurt its already shrinking oil revenues.
Analysts said the lower budget oil price of $16 per barrel,
revised earlier on Thursday, was still one or two dollars above
most market predictions.
"It is on the high side when you look at Brent. They
(Indonesia) will be getting about 20-25 percent less in oil
revenue this year, in dollar terms, compared to last year," said
John Russel, consultant at Petroleum Economics Ltd.
Former Indonesian mines and energy minister I.B. Sudjana said
in February the previous assumed budget price of $17 was too high
and he would propose a reduction to $15.
Benchmark Brent crude is forecast to trade at between $15-16
in 1998 compared to its 1997 average of $19.06, he said.
The official Indonesian Crude Price, which was level with
Brent over the last two years, has been about $1.50 per barrel
below Brent in the first three months of this year.
This trend would continue over the year because of a world
surplus of crude oil and a slowdown in Asian demand for oil
products, Russel said.
"There will be aggressive exporting of oil from Malaysia,
Thailand and South Korea due to plummeting domestic demand.
There is a real danger of dumping," said Kanika Singh, an
economist at research house I.D.E.A.
She said crisis-stricken Indonesia had overestimated its oil
revenues for the 1998/99 financial year which started on
Wednesday and could end up with a bigger budget deficit than the
revised three percent forecast.
"They are relying on oil revenue to pull them through this
(crisis) and that's not going to happen," Kanika said.
The pessimism was based on predictions of oil remaining cheap
as supplies still exceed demand despite a recent deal to lop some
1.4 million bpd of world production of about 75 million bpd.
Oil producers agreed that cut in Vienna this week in an effort
to shore up prices. The market saw the cut as inadequate.
A slowdown in Asian energy demand, with countries such as
Thailand and South Korea looking at a contraction of their
economies, will also hurt Indonesia.
"Indonesia exports 64 percent of its oil to Asia and there is
a big fall in demand in Asia," Kanika said.
Indonesia exports more than 800,000 bpd of crude, although
only a part of this belongs to state-owned Pertamina as a portion
is given to foreign producers for their oilfield investments.
Exports will be reduced as Indonesia agreed to cut output by
70,000-bpd from its actual production of 1.38 million bpd instead
of from its Organization of Petroleum Exporting Countries (OPEC)
quota of 1.456 million bpd.
Industry sources said export reductions are also on the cards
as Indonesia is committed to operate its 1.05 million bpd
refining capacity at full stretch to save on costly imports.
Kanika said Indonesia's early budget estimate of oil revenues
at 35 trillion rupiah (US$4.1 billion) would also be hurt by a
reduction in the $9-9.5 billion it had expected in fees and
royalties from successful exploration for more oil.
Analysts said companies would hold back investments while oil
was cheap because the return on capital would be low.