Indonesia to Price Crude Against Brent

The Ministry of Energy and Mineral Resources is about to change the formula for setting the price of Indonesian crude (ICP). From now on, the government will price crude against dated Brent.

The ministry’s Director General of Oil and Gas I.G.N. Wiratmaja Puja announced that formula will be Brent plus an alpha. The value of alpha will vary by crude specification.

The plan is to adopt this formula to set oil prices this month and evaluate the formula next month. “The Ministry has approved this. It applies from July,” said Wirat at the parliamentary building in Jakarta, Thursday (20/7).

(Read: Government to Adopt New Oil Price Formula Next Month)

Indonesia previously priced its crude using a formula based on an average of price assessments from intelligence company RIM and Platts. Platts is a provider of energy price data and global energy market information headquartered in Singapore. RIM is Japan’s leading independent oil market intelligence firm. Established in 1984, RIM has offices in Tokyo and Singapore.

Wirat said that the change is to make Indonesia’s crude price more realistic. If the oil price formula sets the price too low, revenue could decrease; but if the price is set too high, it will have no buyers.

The Head of Public Relations at the Special Task Force for Upstream Oil and Gas Business Activities (SKK Migas), Taslim Z. Yunus, said that the price of Indonesian crude had always been below West Texas Intermediate (WTI) and Brent, although that had not been the intention.

Taslim said that using the new formula would make the price of Indonesia crude competitive with WTI and Brent, raising more non-tax revenue for the state from the oil and gas sector (Read: Oil at US$ 40 a Barrel Would Boost State Revenue by IDR 3.3 Trillion).

This new price formula is also expected to stimulate the upstream oil and gas industry. “Oil prices will go up, making investment more attractive,” he said at a media workshop in Bandung, Tuesday (19/7).

Member of Commission VII of the House of Representatives (DPR) Satya Widay Yudha backed the government’s decision to base the ICP on Brent, because it could boost Indonesia’s oil production.

He said that not only was Brent a good reflection of global oil prices in general, it had been used as the basis for setting oil prices since 1971, and today is used as the benchmark for the prices of almost 40 percent of the world’s traded oil.

However, Satya warned that this adopting this formula would not automatically boost state revenue. “State revenue might go up or down. Generally, Brent is a few percentage points above ICP, but sometimes ICP is higher than Brent,” he said at the DPR Building, Wednesday (19/7).

The average price of Indonesian crude in June dipped a slight 0.4 percent from the previous month, to US$ 44.60 per barrel, and Minas Sumatran Light (SLC) was down US$ 3.82 to US$ 45.64 per barrel,

Meanwhile on the Indonesian Currency Exchange (ICE), Brent rose US$ 2.28 to US$ 49.93 per barrel, and on the Nymex, WTI increased US$ 2.06 to US$ 48.85 per barrel. Likewise, the OPEC basket price was up US$ 2.61 to US$ 45.82 per barrel. (Read: Falling to US$ 44.50 in June, ICP Bucks Global Trend).

Meanwhile, this year to June, the average price of Indonesian crude was just US$ 36.16 per barrel, falling short of the 2016 Revised State Budget target of US$ 40 per barrel.