Oil hit a record high of $72.20 a barrel Tuesday – April 18, 2006, as Iran defied world pressure to halt its nuclear program, raising new fears of a cut in supplies from the world's fourth biggest crude exporter. The fluctuation of oil price would possibly around $60/barrel in 2007.
Trend
Analysts believe prices will soar further and could break the psychological level of $80 per barrel on higher demand from the United States, China and India.
Brief AnalysisThere is no evident that global high oil price will be going on temporarily and remains unpredictable because of complex world issues. The global oil prices will soar further and could break the psychological level of $80 per barrel on higher demand from the United States, China and India.
Oil facilities in Gulf of Mexico has not yet recovered that cause US needs to import oil to secure domestic energy demand.
In 2006, the economic growth of China is higher then anticipated that causes significantly increase domestic oil consumption (40%). To close the gap, China mostly imports oil from Iran.
Although some producer countries such as Angola, Brazil, and Russia increase their production, but some have production decline such Norway, England, and Indonesia, and some are still have internal conflict such as Nigeria and Iraq.
Impact to Indonesia: global oil prices, which have soared to more than US$70 a barrel, could undermine the state budget and derail economic growth. Government of Indonesia plans to adjust the current fuel subsidy on state budget from Rp54.3 to Rp70.0 Trillions (about 30%). The trade off is that government has to sacrifice other sectors.
Oil facilities in Gulf of Mexico has not yet recovered that cause US needs to import oil to secure domestic energy demand.
In 2006, the economic growth of China is higher then anticipated that causes significantly increase domestic oil consumption (40%). To close the gap, China mostly imports oil from Iran.
Although some producer countries such as Angola, Brazil, and Russia increase their production, but some have production decline such Norway, England, and Indonesia, and some are still have internal conflict such as Nigeria and Iraq.
Impact to Indonesia: global oil prices, which have soared to more than US$70 a barrel, could undermine the state budget and derail economic growth. Government of Indonesia plans to adjust the current fuel subsidy on state budget from Rp54.3 to Rp70.0 Trillions (about 30%). The trade off is that government has to sacrifice other sectors.
It is not clear yet whether Government of Indonesia will raise fuel price. The parliament strongly indicates that there will be no raise. Rising oil prices in the middle of last year caused a meltdown in the Indonesian economy after the government decided to cut the soaring fuel subsidy by raising fuel prices. The impact of that decision is still being felt today in the form of higher inflation and interest rates.
Possible Social Impact to Extractive Industries
If Government of Indonesia has a budget deficit, here is a preliminary assessment of possible social problems may raise around our operation.
- Community may have higher expectation toward the company to help them facing socio-economic problems.
- Fishermen may not go to fish because of fuel scarcity. It will bring about degradation of income and life quality such as mal-nutrition for their children, drop out of school (because they can not afford school fee), and possibly epidemic.
- Fishermen may cut mangrove to substitute fuel for cooking that causes environmental degradation.
- Unemployment and poverty will grow over time.
Those are few possible social problems that may develop into more serious social issues which off course affect the business environment. It may not happened immediately but it may take time.
Synthesized from several different sources by Suta Vijaya
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