ASEAN KEY DESTINATIONS
Govt, House agree to cut oil price, subsidized fuel for 2016
The Energy and Mineral Resources Ministry and the House of Representatives Commission VII overseeing energy have agreed to lower the oil price assumption in the 2016 state budget amid a global supply glut and to cut subsidized diesel fuel on slowing demand.
During a meeting on Thursday, the ministry and Commission VII decided lower the oil price assumption to US$50 per barrel from $60 per barrel previously. The approval will be forwarded to the House’s budget committee before being sealed into the revision of the state budget.
“All party factions at Commission VII agreed on the $50 per barrel assumption as it is seen as more likely considering that the global oversupply is expected to continue,” Commission VII head Kardaya Warnika said.
Following the global supply glut amid a US shale boom, world oil prices have been declining. Oil prices have dropped around 13 percent this year and plunged by more than 50 percent over the past 12 months, according to Bloomberg.
Goldman Sachs also cut down its forecast on crude prices earlier this month. It argued that global surplus would be bigger than its previous estimation and would likely push prices near to $20 per barrel without any move to cut production.
Apart from lowering the crude oil assumption, the ministry and Commission VII also trimmed down the subsidized diesel fuel volume to 16 million kiloliters next year, or around 1 million kiloliters lower compared to the volume proposed for the 2016 state budget of 17.22 million kiloliters.
Given the lower volume, the total amount of subsidies to be disbursed for diesel fuel would also drop to Rp 16 trillion from Rp 17.22 trillion previously. The government currently still subsidizes diesel fuel at Rp 1,000 per liter.
Downstream Oil and Gas Regulatory Agency (BPH Migas) chief Andy Sommeng revealed that setting the volume of subsidized diesel fuel next year at 16 million kiloliters would be in line with the estimated demand growth.
“In 2016, the demand is estimated to be at 14.4 million kiloliters. However, if locomotives, vessels and machinery for agriculture are delivered, the demand could reach 17.22 million kiloliters,” Andy said.
Of the total 14.4 million kiloliter expected demand next year, 13.48 million kiloliters represent actual demand from land transportation.
This year, subsidized diesel fuel consumption has been weak partly because of sluggish industrial activity amid domestic economic slowdown, with the ministry predicting realized consumption at 16.73 million kiloliters by year-end, versus 17.05 million kiloliters projected in the state budget.
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