Indonesia is pulling out of OPEC, because it is no longer a net oil exporter, the energy minister said yesterday.
Purnomo Yusgiantoro told reporters it did not make sense for his oil-producing country to be a member of the OPEC at a time when domestic reserves were drying up and consumption increasing.
“We are pulling out of OPEC,” he said. “I will sign the papers today.”
The country of 235 million people is Southeast Asia’s only member of the cartel, but has had to import oil because of decades of declining investment in exploration and extraction. Corruption and a weak legal system have made oil companies wary of doing business with it.
Purnomo said the decision to leave OPEC was made by the Cabinet of Indonesian President Susilo Bambang Yudhoyono, but that Indonesia could still rejoin at a later date.
Last month, Yudhoyono said his country needed to concentrate on increasing domestic production, which has dropped to less than 1 million barrels a day compared to just over 1.5 million barrels a day in the middle of the 1990s.
Meanwhile, Indonesia, which heavily subsidizes oil to protect the poor, last week raised the price of gasoline and other fuel products by nearly 30 percent because surging costs on the global market threatened to blow its budget.
That move was hailed by economists, who said Yudhoyono had taken the biggest step he could without threatening economic growth.
Others argued, however, that with the government still subsidizing 57 percent of retail transport and cooking fuels, it did not go far enough.
Purnomo said while another price hike this year was unlikely, the government’s long-term policy was to eliminate all subsidies.
OPEC was first formed in 1960 by founding members Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. Indonesia joined in 1962. The cartel presently has 13 members.
Meanwhile, oil prices dropped below US$127 a barrel in Asia yesterday, extending a decline of more than US$3 in the previous session on a growing sense that soaring prices have cut demand for gasoline and other fuel.
The normally busy summer driving season in the US kicked off with the just-ended Memorial Day weekend and some analysts were predicting that data would show it had a lackluster start.
“It definitely was lower than [previous] Memorial Day weekends,” said Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service in Wall, New Jersey.
US Department of Energy data covering the weekend would not be released until next week.
Late afternoon in Singapore, light, sweet crude for July delivery was down US$2.15 at US$126.70 a barrel in electronic trade on the New York Mercantile Exchange. The contract fell US$3.34 to settle at US$128.85 a barrel on Tuesday.
The front-month contract is now more than US$8 off its all-time peak of US$135.09 a barrel, hit last Thursday.
The decline came in the face of supply problems in Mexico and Nigeria that could have driven oil prices higher.