Welcoming New Year with soaring crude prices

My first piece for 2008. Written amid increasing uncertainties around me ....

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US$100

Crude prices on Thursday hit a record for the first time high at US$100 a barrel, although they dipped slightly to US$99.48 in the closing of the New York market. The hike took place amid worries about a weak dollar, tight supplies and geopolitical tensions.

U.S. light, sweet crude traded at US$ 99.76 a barrel on Thursday, while London Brent crude hit its own peak of US$98.26.

Some analysts questioned the validity of the record as it emerged because it was the result of one tiny, lone trade.

However, others also warned the prices could rise further to US$100-US$110 a barrel.

In Indonesia—unlike in most places across the world—the increase did not cause panic among the top decision makers with even Vice President Jusuf Kalla saying that “There is no problem with the prices. From the point of view of the state budget and expenditure (APBN) there is no problem with subsidies, either. If we experience surging inflation, it is mainly because of external factors.”

Well, the vice president could remain calm, but neither the Indonesian Stock Exchange nor the rupiah could and this was evident from their downward trend.

The only one who apparently was cautious over the developments was Finance Minister Sri Mulyani Indrawati who said the surge would certainly “exert an influence on state income and spending.”

She also said that she would continue to monitor the developments while preparing contingency steps with the global crude prices set an average of US$60, US$70, US$90, to US$100 per barrel.

While we certainly hope that the prices would not go beyond the US$100 barrier, we actually at the same time are wondering as well why all the figures in the 2008 APBN were based on the assumptions that the prices of oil would be hovering at US$60 per barrel only although the APBN was first formulated several months ago when crude was already priced at around US$90 per barrel.

Well, of course it is always good to be optimistic. But if we haven’t forgotten everything, it was our over optimism as well back in 1997 which led to our inability to anticipate the Asia financial crisis.

As a result, 10 years afterwards, we still have to grapple with its aftermaths while other countries are already back on their feet and running again.

In other words, today we still have a lot of problems to take care of. Certainly we do not want to see additional ones especially if they can actually be well-anticipated.