Oil Prices Fall

On Monday (Oct 24) trading at 16:38 WIB, the price of West Texas Intermediate (WTI) oil for the December 2016 contract fell 0.03 points or 0.06% to US$50.77 per barrel. The price of the Brent oil contract in December 2016 fell 0.04 points to the US $ 51.74 per barrel. In a report, ANZ Bank said comments that Iraq did not join the OPEC agreement to cut production put crude prices under pressure.

The plan is for OPEC to decide on a supply cut agreement at a meeting on November 30, 2016, in Vienna, Austria. Previously at a meeting in Algeria on September 28, OPEC planned to reduce production by 700,000 barrels to 32.5 million-33 million barrels per day. This figure is down from the organization's oil industry performance last month which was 33.39 million barrels per day. Iraq produces 4.77 million barrels of crude oil per day, with exports reaching 3.87 million barrels per day.

Falah al-Amri, head of marketing for Iraq's state-owned oil company, said it would not reduce oil production and sales. Iraq's Oil Minister Jabba Al-Luabi also said his country should be exempt from production cuts because it is still involved in a war with militant groups.

Previously, OPEC suggested countries that were free from supply cuts were Iran, Nigeria, and Libya. Oil markets were also under pressure after the number of US oil rigs rose last week, the first double-digit increase since August. A stronger dollar also undermines demand because it makes purchases more expensive for countries with other currencies.

On the demand side, Japan's crude oil imports fell 4.6% in September 2016 year on year (YoY) to 3.27 million barrels per day. Japan is the fourth-largest oil consumer in the world at 4.15 million barrels per day in 2015. Despite lower prices, some analysts say the oil market has made a positive move after two years of surplus supply. This condition makes oil fundamentals will balance each other in terms of production and consumption.

Barclays Bank said the market equilibrium will move more quickly to a small deficit in QII-IV/2016. Then, the deficit will widen significantly in the next year. Ric Spooner, Chief Market Analyst at CMC Markets, said the market was still waiting for significant results from the OPEC meeting in late November. In the short term, the price will move around US$ 50 per barrel but risk a decline. William Simadiputra, DBS Group Research Analyst, said that the oil and gas sector is still facing difficult times.

The fall in oil prices that has occurred since mid-2014 has forced companies to cut capital spending at a time of high production costs. Both of these factors could be risks that threaten the recovery in the oil and gas industry in the long term. Low oil prices make it difficult for companies to raise investment funds.

Currently, oil prices have shown an upward trend to US$45-US$50 per barrel, higher than the initial estimate of US$43 per barrel. In the next year and early 2018, oil prices are estimated to move in the range of US$ 50-US$ 60 per barrel and US$ 60-US$ 65 per barrel, although it is not easy for the oil and gas industry sector to reverse this situation.

Bisnis Indonesia, Page-16, Tuesday, Oct 25, 2016