Oil snaps new high of $45 a barrel

Oil snaps new high of $45 a barrel

Jakarta Post, Jakarta

Global oil prices moved to new record highs on Friday, zooming
to close to US$45 per barrel following a blaze at a big U.S.
refinery that ignited fears that current supplies are inadequate
to meet demand that is accelerating at the fastest pace in more
than 20 years.

Oil experienced another hiccup after a flash fire shut a
gasoline-producing unit at BP Plc's 470,000-bpd refinery in
Texas, which is the third-biggest plant in the United States. The
fire was quickly put out.

U.S. light crude struck $44.73 a barrel, up 32 cents from
Tuesday's settlement and the highest in the 21-year history of
crude futures on the New York Mercantile Exchange, AFP reported.

London's Brent crude tipped $41.35 a barrel, a record for the
contract since it started trading in 1988 on the International
Petroleum Exchange.

In a quick response, the Organization of Petroleum Exporting
Countries (OPEC) expressed on Friday its readiness to jack up oil
supplies by as much as 1.5 million barrels per day (bpd) to fight
rising prices, but no decision on the increase will be made until
the cartel's Sept. 14 meeting in Vienna, Austria.

The meeting is scheduled to review OPEC's output policy, but
only Saudi Arabia -- the world's top oil exporter -- seems to
have significant spare capacity to increase supply.

"We are ready to increase production if it is necessary, with
immediate additional production of between 1 million and 1.5
million bpd," said OPEC president Purnomo Yusgiantoro, who is
also Indonesia's minister of energy and mineral resources.

He said the cartel was already overproducing to counter
soaring prices fueled by the financial worries at Russian oil
giant YUKOS, and was looking at further increases.

"The (daily) total production of OPEC at the moment reaches 30
million bpd, consisting of a quota of 26 million, two million
from Iraq and two million from OPEC's overproduction in the
field," said Purnomo.

YUKOS, which pumps 1.7 million bpd (2 percent of world
supplies), is currently caught up in a corruption scandal that is
threatening its ability to continue exports.

OPEC lifted its official output limit by 500,000 bpd to 26
million bpd on Aug. 1.

Oil prices have increased by more than 30 percent this year on
worries over supply disruptions and continuing strong demand,
especially in the U.S. and China.

But while motorists in other countries have to dig deep into
their pockets for costlier fuel, car owners in Indonesia still
enjoy cheap fuel thanks to the government's fuel subsidy, which
is expected to balloon to about Rp 50 trillion ($5.43 billion)
because of soaring oil prices. When it drafted the current state
budget, the government only allocated Rp 14.5 trillion for the
subsidy.

The government claims the impact of rising oil prices on the
state budget has been limited, and that the state still expects
to book net revenue from oil and gas exports of about Rp 1.7
trillion to Rp 1.9 trillion, after deducting the cost of the fuel
subsidy. This is based on the assumption that average oil prices
this year will stand at between $34 and $35 per barrel compared
to the budget assumption of $22 per barrel.

Some analysts, however, have criticized the government's
costly fuel subsidy, which they say is primarily enjoyed by rich
people and has triggered the smuggling of fuel to neighboring
countries. They also warn that the subsidy could prove
disastrous for the economy.

The government has maintained the subsidy policy to avoid
social unrest during the current election year, a costly policy
also taken by former president Soeharto to ensure public support
for his decades-long authoritarian rule.