The Indonesian government is monitoring how the slumping global price of oil might impact the state budget. On the other hand, some businesses have profited from the declining price.
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Benny D Koestanto/Dimas Waraditya Nugraha/Aris Prasetyo
·4 minutes read
JAKARTA, KOMPAS – Dark clouds hang over the global economy as the oil price plummets. Stock markets have sunk into turmoil as negative sentiments grow around the world.The Indonesian government is monitoring how the slumping global price of oil might impact the state budget. On the other hand, some businesses have profited from the declining price.
Bloomberg reported at 9 p.m. on Monday (9/3/2020) that the price of Brent crude oil had plunged 20.39 percent in a single day to US$36.04 per barrel, whereas US West Texas Intermediate (WTI) crude fell 19.65 percent in a single day to $33.17 per barrel. The figures are almost half of the $63 per barrel macro assumption used in the 2020 state budget.
The slump in the oil price was soon followed by stock markets around the world turning red. The Jakarta Composite Index (JCI) closed at 5,136.80 on Monday after single-day drop of 6.57 percent. The JCI has fallen 18.46 percent since the beginning of the year, while foreign investors have booked net sales of Rp 6.265 trillion ($433.82 million).
Largest drop since 1991
The latest fall in the global oil price is the largest since the 1991 Gulf War.
“The timing of this lower price environment should be limited to a few months unless this whole virus impact on global market and consumer confidence triggers the next recession,” said Keith Barnett, the senior vice president strategic analysis at Houston-based ARM Energy.
The failure of Saudi Arabia and Russia to agree on reducing oil production following lower demand due to the Covid-19 outbreak has caused the global oil price to plummet even further.
We will see how it affects the state budget.
The Australian Securities Exchange (ASX) dropped more than 7 percent on Monday. Australian Treasurer Josh Frydenberg said that fluctuating stock prices were common. “As you will be aware, there are many factors behind movements in equity markets,” said Frydenberg, as Harry Bhaskara reported from Brisbane in citing ABC.
Indonesian Finance Minister Sri Mulyani Indrawati said that the government would monitor changes in the global oil market. “We will see how it affects the state budget,” she said.
Sri Mulyani continued that falling oil prices due to global pressures would reduce burdens on economic stimuli for boosting growth. However, falling prices may also affect investors psychologically and create uncertainty in the money and capital markets.
State lender PT Bank Rakyat Indonesia president director Sunarso told Kompas on Monday during a visit to Kompas Tower, Jakarta, that falling oil prices would benefit micro, small and medium enterprises (MSMEs) in the short term, as it would reduce production costs.
However, in the medium and long term, falling oil prices would disrupt other industries, especially manufacturing. This was because the global oil price affected the price of commodities and industrial products.
Financial Services Authority (OJK) capital market oversight executive head Hoesen said the OJK would closely and prudently monitor conditions in Indonesia’s capital market, as well as regional and global market conditions.
Trisakti University earth and energy technology lecturer Pri Agung Rakhmanto said that the falling global oil price would benefit Indonesia. Other than ensuring additional supplies of cheap crude, it would also enable the government to implement a non-subsidized fuel pricing policy.
State energy giant PT Pertamina (Persero) president director Nicke Widyawati said the company would prefer importing more crude as prices fell. As a net oil importer, Indonesia depends on imported oil.
“For the downstream sector, [falling prices] are good, as we can increase purchases while the price is low,” Nicke said on Monday.
Pertamina’s website shows that the company imported 87 million barrels of crude oil worth $5.7 billion last year, as well as 128.4 million barrels of refined fuel worth $8.8 billion.