The Background Of Oil Prices that tend to be stable

Gloria Samantha Tikupasang

Petroleum Engineering Students, Trisakti University, Jakarta, Indonesia

oritikupasang@yahoo.com

Abstract. Current world needs in the industrial sector continue to increase, and industrial
needs are always related to petroleum, such as BBM. This makes all countries strive to find
good quality petroleum and of course at very cheap prices. At present there are many debates
that occur because the price of oil is not in accordance with the process of searching and
processing petroleum. As in Indonesia, petroleum is a staple in the Indonesian state industry,
from here there are many oil graduates whose jobs deviate from the oil department, for
example, there are oil graduates who work in the BANK, there are also oil graduates who
work as artists. This is undeniable because oil prices and the search process are not conducive
and tend to be unstable, but when Donald Trump served as President of the United States, oil
prices now tend to be stable. Developed countries like the United States, Russia, Australia,
etc. Really need oil for construction or trade in the country, in anticipation of oil
unemployment donald trump proposes that oil prices continue to rise.

Keywords : Oil prices , Indonesia , stable

1. Introduction
At present, there are two most widely used petroleum reference prices in the world.
That is the price of Brent oil and WTI (West Texas Intermediate). Brent (Brent Crude) is a
term for North Sea (European) mining oil, with the name Brent derived from mining land in
the north sea, which was opened in 1970. Brent oil prices have been the basis of price
formation since 1971 for almost 40% of the value of oil worldwide, and continue to be used
today.

However, in its development, US oil production has increased and contributed

greatly to the world market share, so that WTI oil prices began to be used as a reference since
around 2007.

WTI (West Texas Intermediate) is petroleum produced in North America, and in its
application it is mostly used for gasoline products. This type of oil is lighter and easier to
process, so it is in great demand, especially in the US and China.

In addition to Brent and WTI, there are still other types of oil that are traded in the
world, such as Dubai Crude (Dubai oil), Oman Crude (Omani oil), Urals Oil (Russian oil
reference price), and OPEC Reference Basket (average oil prices exported by OPEC
countries). However, the general benchmark in determining oil prices is oriented towards
Brent and WTI.

Fig.1. Crude oil price curve

The movement of crude oil prices still has a tendency to remain stable, with
fundamental factors that support each other and drop, even though last night had been
strengthened due to falling inventories in the US by 1.16 million barrels last week, according
to data from the Energy Information Administration (EIA )

After a statement from Saudi Arabia that was ready to issue crude oil reserves to
reduce prices and maintain production due to supply concerns from Iran against fears of
falling demand triggered by US sanctions against Iran, giving direction for prices to continue
to move in a range not far from level level of US $ 106 to US $ 108 for the daily high level.

Doubts Feds to immediately launch the third quarter which should be able to
provide bright prospects for the US economy in particular, and globally in general also seems
to be a limiting factor to rising demand from the demand side.

Japan, which has been exempt from continuing to import Iranian crude by the US,
in addition to the other 10 European countries, is still unable to show its influence on global
demand, although the country's crude oil imports rose 1.8 percent to 4.17 million barrels per
day.

"Data that should be observed comes from Europe, namely Industrial New Order
which is expected to decline to -2.1 percent from the previous 1.9 percent, "said Ariana Nur
Akbar, Monex Research & Analysis Division, Investindo Futures, as quoted in his daily
research, today.

After that is labor data from the US, namely Initial Jobless Claims which are
estimated to rise 354k from 351k previously. Based on these economic data, if according to
estimates, the price is likely to get further pressure.
 Technically according to the movement of Exponential Moving Average GMMA
(Guppy Multi Moving Average), MACD and Stochastics Fast, price movements still shows
daily bearish sentiment. For downward movements, the support range may be found at levels
of US $ 106 (Fibonacci 23.6 percent) and US $ 104 (Fibonacci 0.0 percent) per barrel.
Whereas if the price experiences a pullback, the range of resistance will be can be found at
levels of US $ 108 (Fibonacci 61.8 percent) and US $ 109 (Fibonacci 72.8 percent).

2. The world economy influences the stability of oil prices

The ups and downs of fuel prices in recent months have raised questions about
production, distribution, price calculations and oil consultations. Everything concerns a
complex economic problem. But in terms of oil production and trade these are political
reasons.

The regulation and taxation of the petroleum industry is part of political policy. Downstream
regulations to oil problems, showing economic flows in a country, are seen by the
government as a political function.

The overall problem is not only the economic problem of oil, it is more appropriate to suggest
about this economic political issue of oil.

In general, the price of petroleum, unlike the price of potatoes or other commodities, is not
determined based on the supply and demand of the oil physically. Every barrel of oil that is
now physically sold nine to twelve times in the futures market.

Speculators play an important role by increasing or decreasing prices in excess. Blank sales
or short selling, which is a sales strategy that anticipates falling prices, will benefit
speculators when oil prices fall. This can encourage a lot of sales which causes prices to drop
dramatically below its fundamental value. This phenomenon also occurs when oil prices start
to rise. Initial buying (forward buying) can push prices to be higher than the stable price.

Oil demand is known as something inelastic. Oil quantity has no effect with price changes;
Low oil prices do not cause increased demand.
The machine works pumping crude oil near Halkirk, Alta., In June 2007. The Canadian oil
industry is expected to return to bright in 2018 thanks to higher oil prices. But how long they
will remain high depends on politics rather than the economy.

But the slight change in oil inventories will almost certainly have a major impact on price
changes until any reduction in the supply of 200,000 barrels of oil will cause a price increase
of US $ 10 per barrel per day.
 Fig . 2. Ratio of Price and Quantity

In Indonesia, PT Pertamina (Persero) stated that the price of fuel oil (BBM) that it
sells is still cheaper than Singapore and Japan. According to Pertamian, the price of fuel in
Indonesia remains cheaper even though world oil prices rise.

Pertamina's Managing Director Elia Massa Manik said the price of Premium type fuel outside
the assignment area was set at Rp 6,450 per liter. That's much lower than Rp. 900 per liter
from the market price. Whereas solar subsidies which are set at Rp 5,150 per liter are lower
than Rp 1,550 per liter from the market price.

"If we see in 2017 the price is still at an average of IDR 6,450 for diesel fuel at IDR 5,150.
According to the target, in December the premium price assignment was at almost Rp 900,
the diesel fuel was priced at Rp 1,550, "Elia said during a meeting with Commission VII of
the House, at the Parliament Building, Jakarta, and was quoted as Kedaulatan Rakyat,
Thursday 18 January 2018 .

He continued, for the price of non-subsidized fuel such as Pertalite and Pertamax set by
Pertamina at this time, it was also much lower by 10 to 50 percent compared to other
countries, such as Singapore and Japan. He also claimed the fuel price set by Pertamina was
the cheapest.

"We are among the cheapest in pursuing fuel prices, if we look at Singapore and Japan, the
price difference is that we sell a range of 10-50 percent," Elia said.

According to him, the difference in the price of subsidized Premium and Solar from market
prices affects the profits obtained by the company, from fuel distribution activities. "Then of
course this price difference will affect profitability,"
3. Conclusions
To stabilize world oil prices, OPEC has several policies to support this, all of which
are based on referendums from countries that are members of OPEC, which is where the
policy is

1. Determining oil prices from OPEC

In determining the price of oil to be stable, previously the oil exporting countries
joined in OPEC released oil to be traded on the international market. OPEC will hold a board
meeting together with its member countries. Oil prices are determined by the large number of
requests, but from OPEC itself has determined the amount of oil quota restrictions to be
traded every day. For the period 2007 to 2008 OPEC has cut its oil shipping quota amounting
to USD 1.4 million per barrel and most recently at the end of 2008 and in 2009 OPEC has cut
its oil quota to USD 2.2 million barrels per day. OPEC does this all with a purpose, because
OPEC wants to maintain and make stability in its oil prices on the world market and also to
protect the interests of its cartels. Then Baker Hughes also gave the idea that existing rigs in
the United States increased by two, which previously totaled 416 rigs now totaling 418 rigs.

2. Import of oil in European countries

As far as we know, oil is the main commodity of income of OPEC member
countries. In the world economic sector, member countries are the largest oil exporting
countries for several countries including European countries. Why Europe, because Europe is
the target market for oil exporting countries other than the United States and China.

This is because most European countries, especially countries in Western Europe, are
developed countries that have a qualified industrial sector or can be said to be a rapid
industrial sector. Countries in Europe export crude oil to meet their domestic needs. Although
the quota supplied by oil-exporting countries is not as large as supply to the United States and
China, the European market is a favorable target for oil-exporting countries.

However, along with the development of the world, where countries in the world are trying to
advance the industrial sector so that the demand for oil supplies in the world is increasingly
increasing. This world market demand makes oil prices gradually improve and continue to
rise. At the beginning of 2004 world oil prices fell in the range of USD 35.9 per barrel.

Rising oil prices did not make the market in Europe to reduce the amount of oil import quota.
The increase in oil prices which is expected to reach USD 130 per barrel does not weaken oil
demand in the European market. This is due to the large number of domestic demand as
already known in Europe as a developed country that has a rapidly expanding industrial
sector.

The industrial sector in European countries is in desperate need of oil for its production
activities. So that there is no reduction in the amount of oil import quota carried out by
importing countries in Europe. Countries in Europe are oil importing countries not oil-
producing countries, so however countries in Europe continue to need oil supplies from
importing countries of oil ( OPEC). Then, by carrying out oil exports to European countries,
oil prices can stabilize so that there will be no fluctuations in the price determination later.
Reference :

Baker Hughes: “Jumlah rig pengeboran minyak aktif di AS bertambah”

http://berita.suaramerdeka.com/bisnis/apakah-opec-akan-berhasil-menstabilkan-harga-
minyak/

Benni Lubiantara, Dinamika Industri Migas: Catatan Analisis OPEC, (Jakarta: Red&White
publishing 2004) hlm. 146-148

Sanusi, Indonesia dalam dunia perminyakan (Jakarta: UI Press 1984) hlm.94

Setiawan, Verda Nano. 2019. Harga Minyak Dunia Sentuh Level Tertinggi dalam Lima
Bulan Terakhir. Jakarta : Katadata