Thursday, 12 March 2015


All the turbulence in falling world’s oil price that started early this till now was still on. Apparently oil price fell close to near bottom level in the past 6 years last January 2015 (28/1) as America’s stock of oil soared up to highest level which triggered new anxiety.

By America’s benchmark Light Sweet Oil or WTI for March delivery was down by USD 1.78 to become USD 44.45 per barrel at the NYME the lowest closing since March 2009.

By Europe’s standard, Brent North Sea crude oil for March delivery was down by USD 1.13 to settle at USD 48.47 per barrel at London transaction. Data of the US Department of Energy showed that US stock of oil increased by 98.9 million barrels to become 406.7 million barrels ending January 2015 or 49.1 million barrels higher than the year before.

Such was the highest level since the Government of the USA started to maintain weekly record since 1982; this was also above monthly data since April 1931, indeed not an impressive portrait.

The oil market had crumbled by more than 50% since June 2014, being affected by over supply of crude oil, low global demand and the decision of OPEC to let oil price slump because it did not lower production level.

If prove was needed that oil price was down pressed by over supply, then data of stock explained it all. Hence price of oil could sink deeper and price lowering to below USD 40 per barrel became reality within the short and medium term.

It was noteworthy that increase of oil price in the past few days was nothing but a hoax. Citigroup predicted that oil price would continue to nose-dive to as low as USD 20 per barrel. Although oil price dropped, production output by oil producers in the USA kept increasing.

Most probably OPEC could no longer play their role. Once there was a discourse of “The Death of OPEC” due to global crisis, but this time it might actually happen. Accordingly, Citigroup axed projection of Brent oil price for the second time.

Meanwhile the Statistics Division of US energy Information Board (EIA) reported that oil stock in Cushing, Oklamhoma, the point of recipient for contract increased by 2 million barrels to become 38.8 million barrels over the same period. EIA data had it that crude oil production in the USA increased by 30,000 barrels by end of January last, the highest since 1983.

Meanwhile USD strengthened against most of world’s currencies through January last because the Fed announced they would “stay patient” in increasing bank interest and assured that US economy would firmly develop. The fact was that strengthening of Greenbuck made oil priced in USD be more expensive and unappealing to buyers.

Pressures on oil price also had its effect on falling primary commodity prices as oil substitute. One of them was coal. Coal miners predicted coal business would be grim this year. Low price of coal and legal uncertainty of the coal industry were the main grievances of coal miners in 2015.

The Association of Indonesian Coal Miners (APBI) stated that a number of problems handicaped national coal industry:

Firstly, no legal certainty seemed to be there for a long time, and yet Return on investment of coal mine was notably long. Therefore, the coal mining industry needed legal certainty. The legal assurance must be fair and just to mining permit holders and synchronous with the PKP2B.

An example was that the renegotiation of PKP2B Agreement was done without considering miners’ interest. For example the Government made it mandatory for miner companies to process coal and put added value to it for national interest while permit holders must comply to increase of royalty fee which was high.

To illustrate, Government’s regulation on Non-tax State’s Income no 9/2012 on non-tax State’s income of the Ministry of Energy and Mineral Resources stated IUP Royalty of coal between 3% - 7% depending on calorie content of coal. Now the Government increased IUP Royalty of coal to become 7% - 13.5% depending on the calorie.

Secondly selling price of coal dropped while production cost increased. The result was that some IUP Permit holders and PKP2B in some provinces like Jambi and South Kalimantan stopped their mining operations.

Thirdly, soft law enforcement on illegal miners. A condition as such caused over supply and downsized coal price. So far supply of illegal coal might come to 60 million tons per year.

Firstly, the value addition to coal program seemed stationary.

With the said problems, businesspeople were expecting the Government to be serious in managing national coal industry. Utility of coal for local market need must be spurred on. For example building of Steam Powered Generators (PLTU) must be included in added-value foe coal program whereby to promote PLTU development.

Weakening of coal price suppressed the coal industry. Last January, price of coal increased but traders were pessimistic it would be as high as 2 years ago. They predicted price would still be low. If only benchmark price (HBA) went up to as high as USD 80 per ton it would be satisfactory.

By January 2015, HBA was USD 63.84 per ton, a downturn of 22,05% against HBA of January 2014 which came to USD 81.9 million per ton. To anticipate such, traders ran efficiency and price renegotiation with contractors or suppliers of oil fuel.

Under the circumstances it was only reasonable for the Government as Regulator to help businesspeople lessen their burden. One of them was to simplify permit application procedures from 56 to 18 permits by the Government to help coal miners from falling downhill. (SS)

Business News - February 18, 2015

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