Singapore’s middle distillate traders and major Northeast Asian gasoline suppliers, including South Korean refiners, expect a small setback in auto fuel exports to Indonesia in the coming months after Jakarta hiked fuel prices by more than 30% to curb rising subsidies.
Demand for automotive fuel in Southeast Asia’s largest oil consuming nation was fragile amid the country’s tourism sector’s tepid recovery, while consumer confidence and purchasing power continued to weaken, with the local currency rupiah falling about 5% against the dollar.
The Indonesian government’s cut in subsidy spending and the recent increase in fuel prices could significantly affect domestic gasoline and diesel demand, which would also lead to lower imports of middle distillates and products in the coming months, according to traders from Singapore and Kuala Lumpur, marketers at two South Korean refiners .
Indonesia’s total gasoline imports in September are expected to be just 7-8 million barrels, down from previous estimates of over 9 million barrels, S&P Global Commodity Insights previously reported.
In July, state-owned energy company Pertamina indicated it was confident of producing and importing plenty of oil products while keeping retail prices for popular fuels like diesel and 88 RON petrol stable thanks to strong government subsidy support.
The government’s full support for Pertamina will facilitate the distribution of subsidized fuel, the state-owned company said earlier. Pertamina would receive 93.5 trillion rupees ($6.25 billion) in subsidies and compensation from the government in 2022, more than 64.5 trillion rupees ($4.3 billion) in compensation for subsidized fuel distribution a year 2021, the company said in a statement.
However, Indonesia has completely abandoned its liberal spending stance as President Joko Widodo raised subsidized fuel prices by about 30% on September 3 in a bid to stem a skyrocketing energy subsidy budget and cut government spending.
The fuel increase would cut subsidy spending by about 48 trillion rupiah ($3.22 billion) to 650 trillion rupiah this year, Deputy Finance Minister Suahasil Nazara said.
The latest fuel price hike marked the first rise in eight years. The price of RON 90 subsidized petrol, Pertalite, and RON 92 subsidized petrol, Pertamax, was increased by 2,350 rupiah/litre (16 cents/litre) and 2,000 rupiah/litre (13 cents/litre) respectively. The retail price of diesel was raised by over 30% to 6.80 rupiah/litre (46 cents/litre) on September 3 from the previous 5,150 rupiah/litre (35 cents/b).
Fuel subsidies have long been a hot topic in Southeast Asia’s largest economy. The government has regularly subsidized fuel for the last several decades.
“Indonesia had already deferred about 1.6 million barrels from September to October. The country may yet have to raise domestic prices and is unlikely to issue additional spotters on imports as cash differentials for RON 92 are at $5/b, a sharp increase from $3/b previously,” said a Singapore-based petrol trader.
Fourth quarter sales
South Korea, Asia’s top supplier of middle distillates, has seen robust gasoline exports to Indonesia so far this year, but strong sales momentum could falter in the fourth quarter as consumers in Southeast Asia’s largest economy poised to tighten their belts. Marketer of oil products at two South Korean refineries.
South Korea exported 5.44 million barrels of gasoline to Indonesia in the first seven months of 2022, nearly a sevenfold increase from just 807,000 barrels sold in the same period of 2021, data from the state-owned Korea National Oil Corp showed.
The original target for fourth-quarter sales to Indonesia was in the 2-3 million barrel range, but the recent hike in fuel prices and a sharp drop in domestic consumer sentiment could mean October-December exports could struggle to bottom out Target range to be reached by year-end, according to fuel sales and export logistics managers at South Korean refineries.
“However, given the lack of public transport systems and networks in major Indonesian cities, Indonesian consumers rely heavily on private transportation. Basic demand would remain supported and we do not expect a large-scale drop in auto fuel sales to Indonesia,” said a middle distillate marketer at a South Korean refinery.
Singapore-based middle distillate traders also said Peramina’s fourth-quarter auto fuel imports are likely to fall below the three-year quarterly average, but Indonesia’s gasoline demand is unlikely to fall significantly as gasoline-powered vehicles remain the primary mode of transportation in Indonesia.
“It’s hard to travel in Indonesia without a car or motorbike,” said another Singapore-based petrol trader.