MONITORING

Oil Falls From 16-Month High as OPEC Production Keeps on Rising

Oil retreated from a 16-month high after OPEC pumped a record amount of crude in November. As reported by Bloomberg, West Texas Intermediate for January delivery dropped 86 cents to settle at US$ 50.93 a barrel on the New York Mercantile Exchange. The contract settled at US$ 51.79 on Monday, the highest close since July 2015. Total volume traded was about 10 percent above the 100-day average.


After slipping back to US$ 50.67, futures recovered to $50.91 when the industry-funded American Petroleum Institute was said to report crude supplies nationwide fell 2.21 million barrels last week. Brent for February settlement fell US$ 1.01, or 1.8 percent, to US$ 53.93 a barrel on the London-based ICE Futures Europe exchange. Futures closed US$ 54.94 on Monday, also the highest close since July 2015. The global benchmark crude ended the session at a US$ 1.96 premium to February WTI.

Oil-Output Cuts Could Hit Russian Energy Companies

The Russian government is committed to cutting oil production in line with world producers but now comes the hard part: making it happen. As reported by The Wall Street Journal, Russian Energy Minister Alexander Novak pledged last week to cut production by up to 300,000 barrels a day by mid-2017. Russia, which pumps more crude oil than any other country, has had a spotty record with implementing production cuts in the past, pledging to reduce output and ramping up drilling instead.


Things haven’t got easier since: the collapse of the Russian ruble and a tax regime that offers tax breaks and incentives for new, more complex projects have made it relatively easy for Russian companies to shield profits and keep pumping through the downturn. Major Russian producers—including the country’s two largest, PAO Lukoil and PAO Rosneft—are launching new projects late this year or early next year, guaranteeing a ramp up in production that could be difficult to delay.

Saudi Arabia Cuts January Oil Price to Asia

Saudi Aramco has cut the January price for its Arab Light crude for Asian customers to the lowest in four months as it holds to a strategy of preserving market share in the world's fastest-growing demand center. The price cuts are meant to ensure that Aramco can still sell more oil into Asia even after going along with the OPEC-Russia deal to cut output. The Saudis have been struggling over the last two years to fight off increased competition from other producers in the Middle East, Russia and the Atlantic Basin.


As reported by Reuters, Saudi Aramco said on Tuesday it cut the price of Arab Light crude sales to Asia by US$ 1.20 a barrel versus December to a discount of US$ 0.75 a barrel to the Oman/Dubai average. January's price cuts of US$ 0.60-US$ 1.50 across all Saudi crude grades are small compared with a near US$ 10 a barrel gain in global benchmark Brent futures in the past week. Brent hit 16-month high on Monday after OPEC and Russia struck a deal last week to cut production from January.

BP is Most-Exposed Among Oil Majors to OPEC-Russia Cuts

Big Oil may have to play a part in cutting supply after the landmark agreement between OPEC and non-OPEC producers last week. BP Plc has the highest exposure in the 13 countries that have so far said they will cut output, according to Rystad Energy AS data. The likely participation by Russia, where BP holds a 20 percent stake in Rosneft PJSC, puts it ahead of rivals Total SA, Royal Dutch Shell Plc, Exxon Mobil Corp., Eni SpA and Chevron Corp., according to the data, as reported by Bloomberg.


The Organization of Petroleum Exporting Countries, which controls about 40 percent of the world’s oil, took it on itself to boost prices and revive the industry with the first production cuts in eight years. Oil companies, which have seen profits smashed and projects delayed or canceled in the downturn, are headed for their best annual share performance since 2009. But even as the deal buoys their market value, the majors will have to bear some of the burden.

Pertamina Must Prepare Strategis Actions

Energy analyst from UGM Fahmy Radhi as cited by Investor Daily said that Pertamina needs to take a number of steps to be a world class energy company. One of them is by actively acquiring producing, overseas oil and gas fields. The second step is allowing Pertamina to own and monetise assets to improve its international leverage. He added that Pertamina should be given a privilege to acquire and exploit domestic oil and gas fields.


In addition, the company has to minimise intervention in its organisation, the addition of the board of director members, decision making and corporate action. He said that the government and the House of Representatives should give flexibility to Pertamina to use its profit. Pertamina is on the way to be a world class energy company by consistently carrying out business activities based on good governance principle.

Industry Disappointed with Discounted Gas Price Policy

The government’s decision to cut industrial gas prices for the fertiliser, petrochemical, and steel industries has stirred controversy. The Regulation of Energy Minister No. 40/2016 does not provide discount to other industries as stipulated in the Regulation of President No. 40/2016. Yustinus Gunawan, Chair of the Indonesian Association of Sheet and Safety Glass (AKLP) as cited by Kontan said that the industries that were excluded from the discounted gas price policy are glass, ceramic, rubber glove and oleochemical industries.


That is why, Yustinus asked the government to clarify the ministerial regulation which contradicts the presidential regulation. If necessary, Yustinus added, the assosiation is ready to bring the case to the court if the Energy Minister ignores the presidential regulation. Based on the Regulation of Energy Minister No. 40/2016, five companies from the fertiliser, petrochemical, and steel industries will be entitled to discounted gas prices. Director General of Budget at Finance Ministry Askolani as cited by Koran Tempo said that the gas price policy will not impact non-tax state revenue from oil and gas sector.

Natuna Islands Need Technology Breakthrough

Indonesia is lacking proper technologies and is unwilling to take a risk to develop its own marginal fields, such as those in the Natuna Islands, Riau Islands, says Energy and Mineral Resources Deputy Minister Arcandra Tahar, as cited by The Jakarta Post. A marginal field is a field that may not produce enough net income to make it worth developing at a given time. A field can be seen as marginal due to various conditions, including a drop in global oil prices, a lack of proper technologies to produce in such areas, a remote location or a lack of research.


Unfortunately, the gas field has a high CO2 level of around 71 percent, necessitating advanced technology and huge investment to develop the block. It is estimated that the block needs between US$20 billion and US$ 40 billion in investment. However, Arcandra said that it did not mean it was impossible to develop Natuna Islands in the near future. He specifically mentioned his own experience in developing a marginal field in Peru back in 2010, completing the research for certain drilling tools with relatively inexpensive prices to develop the field within less than two years.

Govt Warns of Harsh Sanctions for Those Avoiding Amnesty

The government has warned of harsh punishments for tax evaders who are turning down the opportunity to join the tax amnesty program, vowing to track their undeclared offshore assets around the globe through the Automatic Exchange of Information portal in 2018. As reported by The Jakarta Post, according to data from Directorate General of Taxation, 1,041 businesspeople from the coal and mineral industry have joined the tax amnesty program, resulting in penalty payments reaching Rp 228.6 billion.


However, this only represents 17.23 percent of the total 6,041 businesspeople in the sector. The Finance Ministry Regulation stipulates burdensome fines for tax evaders: up to 200 percent of evaded tax liabilities. In addition to threatening tax evading businesspeople with harsh punishment, the government has also warned tax officers not to abuse their authority by providing any illegal assistance to tax evaders to avoid their tax liabilities or fines. President Joko Widodo said that all countries will be blunt [in disclosing offshore assets they are holding]. Therefore, there will be no mercy after March 2017.