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.