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Singapore's middle distillate traders and major Northeast Asian gasoline suppliers including South Korean refiners are expecting a minor setback in automotive fuel exports to Indonesia in the coming months after Jakarta raised fuel prices by more than 30% to curb soaring subsidies.
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Automotive fuel demand in Southeast Asia's biggest oil product consuming nation has been fragile amid tepid recovery in the country's tourism sector, while consumer confidence and purchasing power continued to weaken, with local currency Rupiah falling around 5% against the dollar.
The cutback in the Indonesian government's subsidy spending and the latest fuel price hike could significantly hit domestic gasoline and diesel demand, leading to less middle distillate imports in the coming months as well, according to traders based in Singapore and Kuala Lumpur, as well as product marketers at two South Korean refiners.
Indonesia's total September gasoline imports are expected to be as low as 7-8 million barrels, down from previous estimates of above 9 million barrels, S&P Global Commodity Insights reported earlier.
In July, state-run energy firm Pertamina had indicated that it was confident of producing and importing ample supply of oil products, while keeping retail prices of popular fuels such as diesel and 88 RON gasoline steady thanks to the government's strong subsidy support.
The government's full support for Pertamina makes distributing subsidized fuel easier, the state-run company said previously. Pertamina would receive Rupiah 93.5 trillion ($6.25 billion) in subsidies and compensation from the government in 2022, higher than Rupiah 64.5 trillion ($4.3 billion) in compensation received for 2021 subsidized fuel distribution, the company said in a statement.
However, Indonesia has completely overturned its generous spending stance, with President Joko Widodo raising subsidized fuel prices by about 30% Sept. 3 to put brakes on ballooning energy subsidy budget and save on government spending.
The fuel hike would cut subsidy spending by about 48 trillion rupiah ($3.22 billion) this year to 650 trillion rupiah, Deputy Finance Minister Suahasil Nazara said.
The latest fuel price hike marked the first increase in eight years. The price of subsidized 90 RON gasoline, Pertalite, and subsidized 92-RON gasoline, Pertamax, were raised by 2,350 rupiah/liter (16 cents/liter) and 2,000 rupiah/liter (13 cents/liter), respectively. The retail price of diesel has been hiked by over 30% to 6,80 rupiah/l (46 cents/l) Sept. 3, from 5,150 rupiah/l (35 cents/b) earlier.
Fuel subsidies have long been sensitive in Southeast Asia's largest economy. The government has subsidized fuel regularly over the past decades.
"Indonesia had already deferred about 1.6 million barrels from September to October. The country may still need to increase domestic prices and would likely not issue additional spot tenders for imports as cash differentials for 92 RON are at $5/b, up sharply from $3/b earlier," said a Singapore-based gasoline trader.
South Korea, Asia's major middle distillate supplier, has been posting robust gasoline exports to Indonesia so far this year, but the strong sales momentum could come to a halt in fourth quarter as consumers in the Southeast Asia's biggest economy are poised to tighten their belt, oil product marketers at two South Korean refiners said.
South Korea exported 5.44 million barrels of gasoline to Indonesia in the first seven months of 2022, almost a seven-fold jump from just 807,000 barrels sold over the same period 2021, data from state-run Korea National Oil Corp showed.
Initial target for the Q4 sales to Indonesia was set in the range of 2 million-3 million barrels, but the latest fuel price hike and a sharp dip in domestic consumer sentiment could mean Oct-Dec exports may struggle to meet the lower end of the target range, according to fuel sales and export logistics managers at South Korean refiners said.
"Still, considering the fact that major Indonesian cities lack public transport systems and network, Indonesian consumers rely heavily on private means of transport. Base demand would remain supported, and we don't expect a grand scale drop in automotive fuel sales to Indonesia," a middle distillate marketer at a South Korean refiner said.
Middle distillate traders based in Singapore also indicated that Peramina's Q4 automotive fuel imports would likely fall below the three-year quarterly average, but Indonesia's domestic gasoline demand is unlikely to fall substantially, as gasoline-powered vehicles remain the main mode of transport in Indonesia.
"It's hard to travel without a car or a motorbike in Indonesia," another Singapore-based gasoline trader said.
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