JAKARTA - The current price of non-subsidized fuel oil (BBM) has begun to be questioned by the public when world oil prices fell after Iran and the United States (US) ended the conflict. A number of economists explain that the price of non-subsidized fuel oil cannot immediately fall, as the world oil price has fallen.
"Fuel prices in Indonesia do not always follow the world oil price directly, because the price paid by the public at gas stations is not only determined by the crude oil price, but is a combined result of the price of finished fuel products in the regional market, the rupiah exchange rate, procurement costs, storage, distribution, business entity margins, and taxes," said Bank Permata's chief economist, Josua Pardede when contacted, Wednesday, June 17.
Josua explained that all these factors must be calculated using a certain average period, not daily prices. For example for subsidized fuels such as Pertalite and Solar, he said, the price is more a policy decision of the state that considers the purchasing power of the people and the ability of the state budget, so when the world oil price falls, the fiscal space that opens up can be used first to reduce the burden of subsidies and compensation that previously swelled.
"It is not directly passed on as a price reduction at gas stations. Meanwhile, for non-subsidized fuels, adjustments follow the market mechanism, but still do not move daily because they use official formulas and government supervision; therefore, the real issue is not whether fuel prices should fall, but how transparent the government is in communicating the components of the calculation of the price to the public so that it is not easily politicized," he said.
Based on his calculations, the ideal economic price of Pertamax is currently in the range of Rp. 16,500 per liter, or about Rp. 250 higher than the current selling price. With a new selling price of Rp. 16,250, Pertamax is still sold below the economic price of around Rp. 250 per liter," said Josua.
According to Josua, the high economic price of Pertamax was triggered by a spike in world crude oil prices that exceeded the state budget assumption of USD70 per barrel. This condition is exacerbated by the depreciation of the rupiah exchange rate which increases the cost of energy imports.
He assessed that the increase in the price of Pertamax from Rp12,300 to Rp16,250 per liter was a necessary corrective step to reduce the financial pressure that Pertamina had been bearing due to the price freeze.
"If the price of Pertamax is kept at Rp12,300 for too long, the burden must be borne by Pertamina," said Josua.
In line with Josua, energy economics expert at Padjadjaran University (Unpad) Yayan Satyaki said peace between Iran and the US would be a positive sentiment for the global energy market because it has the potential to suppress world crude oil prices. According to him, the trend of declining oil prices will eventually have an impact on the price of non-subsidized fuel in the country, including Pertamax. However, the decline in Pertamax prices to return to around Rp12,300 per liter is not expected to happen in the near future.
"There will definitely be a price reduction, and it could have an impact on Pertamax, but to reach Pertamax prices to Rp. 12,300 again will not be that fast," said Yayan.
He estimated that the decline in world oil prices would take place gradually. In this scenario, oil prices can correct by around 1% to 3% per day and last for the next few months. However, the direction of global energy prices will still depend heavily on the development of the geopolitical situation and the level of success in implementing peace between the two countries.
Yayan said that the market also still needs to pay attention to the dynamics of Brent oil prices, which currently show a weakening trend. According to him, Brent prices have the potential to continue to fall until early July 2026 before rising again in August to September as the summer ends in northern hemisphere countries.
"We see that Brent prices are falling, and it is likely to continue to fall until early July. After that, it has the potential to rise again in early August to September when summer ends," he said.
Furthermore, Yayan assessed that the global oil market would not enter a new price equilibrium in the near future. Based on the Short Term Energy Outlook (STEO) projections published by the United States Energy Information Administration (EIA), the market is still in a transition phase towards a new equilibrium.
According to him, the increase in US oil production, which is estimated to reach 14 million barrels per day, will be one of the main factors that will hold back the rise in world oil prices after the peace. Assuming the conflict ends and global energy supply returns to stability, Yayan estimates that world oil prices can move in the range of USD80-90 per barrel until the end of the year. Furthermore, prices have the potential to fall further to the range of USD75-85 per barrel by the end of the year or early next year.
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