Analysis: Indonesia's Pertamina favors imported oil over domestic products amid price crash

Singapore — Indonesia is increasingly finding the recent oil price crash working in favor of its trade balance sheet, allowing state-run oil and gas company Pertamina to seize the low price opportunity to ramp up gasoline and crude oil imports for strategic reserves and trading purposes.

The sharp decline in benchmark crude oil and fuel prices has allayed much of Indonesia's concerns over its wide current account deficit and lofty energy import bills, providing some room for Jakarta to loosen controls on the country's oil imports.

In January, the government had ordered Pertamina to cut its crude oil and condensate imports to 50 million barrels in 2020, down from around 80 million barrels purchased in 2019, as the country's current account deficit spiked and its purchasing power for oil had been severely circumscribed by a depreciating local currency since late 2018.

The tide has turned, however, with S&P Global Platts crude and gasoline benchmarks' 80% plunge since the start of the year luring Pertamina to sharply increase oil purchases in the second quarter.

Pertamina plans to import around 9.3 million barrels of 92 RON gasoline and 10 million barrels of crude oil and condensate in May, a senior company official told Platts.

The gasoline purchase plan for May is well above the 7 million barrels forecast by Platts' survey of traders and also surpasses the 6.97 million barrels of gasoline grade of 90 RON or higher imported in the first two months of the year, according to Statistics Indonesia.

"It is part of security of supply and it's the right time to buy. We will optimize our storage by adding imported stocks," Pertamina's president director Nicke Widyawati said in parliamentary hearing via video conference held last week.

CRUDE TRADING

Pertamina had initially been directed to boost its crude purchases from oil companies operating and producing domestically as a means of reducing Indonesia's energy import bills.

However, Pertamina said it could reverse the refinery feedstock procurement strategy, with the global price collapse providing the state-run company impetus to process more international grades, while exporting some premium domestic oil.

Pertamina said the average price spread between imported crude grades and domestic crudes has narrowed sharply to around $2.30/b, from more than $6/b in 2019.

Indonesia's Ministry of Energy and Mineral Resources has set the official selling price for the country's flagship heavy sweet Duri crude oil lifted in March at $43.10/b.

In comparison, many of the country's regular import grades were quoted lower than domestic oil in recent trading cycles, with Sudanese Nile Blend crude assessed at an average outright price of $36.04/b in March, Platts data showed.

In addition, Malaysia's state-owned Petronas set the OSP for the country's Kimanis crude loaded in March at $41.13/b, almost $2/b cheaper than Duri. The light sweet Malaysian crude is one of Indonesia's top 5 import grades.

REFINERY SHUTDOWN

Meanwhile, Pertamina has decided to halt some of its refinery operations, as importing oil products is seen more economical than producing fuel domestically amid poor refining margins, while fuel demand is expected to trend lower as economic activities slow down due to the coronavirus outbreak.

"Fuel supply is very secure because we have excess production. We have to stop part of our refineries because demand is set to decline. We will stop producing gasoil and jet fuel," Widyawati said.

Pertamina plans to slash run rates at its 260,000 b/d Balikpapan refinery complex in East Kalimantan gradually before shutting it completely to carry out unplanned maintenance in May. The company has several refineries with a total capacity of 1.05 million b/d.

Indonesia's daily gasoline consumption fell 17% month on month to 77,950 kiloliters in March, while gasoil demand fell more than 8% over the same period to 37,840 kl/d, according to Pertamina. Jet fuel demand from the aviation sector suffered a big blow, plunging 45% on month to 8,640 kl/d in March.