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.