Jakarta quits Opec - a year after returning

 A view of state-owned oil giant Pertamina's refinery unit IV in Cilacap, Central Java, Indonesia on Jan 13, 2016.
A view of state-owned oil giant Pertamina's refinery unit IV in Cilacap, Central Java, Indonesia on Jan 13, 2016.PHOTO: REUTERS

JAKARTA • Indonesia, Asia's only Organisation of Petroleum Exporting Countries (Opec) representative, suspended its membership one year after rejoining the group, saying it would not benefit from the deal to cut output.

Indonesia consumes about twice as much oil as it pumps. Its readmission last year received surprise, signalling to some that Opec had abandoned its role as a defender of oil prices.

With Wednesday's shock deal to slash production reaffirming that raison d'etre, the membership of a country that wants cheaper crude oil became untenable.

"I don't know why Indonesia joined Opec in the first place. And they found themselves in a weird position," said Samsung Futures commodities analyst Hong Sung Ki by phone from Seoul.

"They have absolutely no reason to curb output as it will only increase their import costs."

In a deal that confounded doubters and sent crude oil prices soaring, Opec agreed to its first production cut in eight years at its meeting in Vienna on Wednesday.

For Indonesia, the request to cut by about 5 per cent was simply too much.

"As a net oil importer, a cut in production capacity isn't beneficial for Indonesia because, theoretically, it will increase prices," Energy Minister Ignasius Jonan said in a statement.

The requested reduction was equivalent to about 37,000 barrels a day, above the 5,000 barrels a day the country could afford, he added.

"There's still a need to have higher state revenue and the 2017 state budget stipulates that oil output for next year can only drop by 5,000 barrels a day," the statement said.

Freezing membership was the best decision as it allows Opec to proceed with its production cut while letting Indonesia act in its national interest.

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A version of this article appeared in the print edition of The Straits Times on December 02, 2016, with the headline 'Jakarta quits Opec - a year after returning'. Print Edition | Subscribe