Pertamina mulls changes to its oil price formula
Pertamina mulls changes to its oil price formula
SINGAPORE (Reuter): Indonesian state oil company Pertamina is again considering to adjust the official Indonesian Crude Price (ICP) formula for its crude sales, a company source said yesterday.
The new formula seeks to raise the percentage of spot assessments of two publications, Platt's and RIM Intelligence Co, while reducing the portion of the Asian Petroleum Price Index (APPI) panel quotes.
This is the third time that Pertamina has adjusted its ICP formula in the past four years.
With each change, Pertamina reduced the APPI portion in the formula by a certain percentage. The APPI assessment is made twice a week while the other two are done daily.
Pertamina's recent proposal follows that of Vietnam's state oil firm Petechim, which seeks for the first time to cut the APPI element in its Bach Ho term crude price, and introduce Platt's spot quotes into the official selling price formula.
Pertamina would propose the ICP adjustment to buyers at an annual buyers' meeting next month.
"We are very unhappy with APPI, because it is much lower than other price quotations," a Pertamina official said.
"We are not looking for higher prices, we just want prices that reflect the market."
Before 1994, the ICP formula for all Indonesian crudes, except Duri and Widuri, was based only on the APPI assessment of a basket of benchmark crudes--Oman, Dubai, Minas, Tapis and Gippsland--and a 52-week rolling average of individual crudes.
Since then, the APPI portion of the ICP has been cut to half in the present formula.
Platt's and RIM each make up a quarter of the present ICP.
The latest change seeks to cut the APPI portion further to a third of the ICP formula. This would raise the percentage of Platt's and RIM assessments to a third each.
The 52-week rolling average would remain, the official said.
Indonesia, Asia's only OPEC member, is the second largest crude producer in the region after China, exporting just over half of its 1.5-million-barrel-per-day (bpd) output.
Pertamina does not market the crudes directly but allocates a certain volume to its affiliates each month for export, at parity to the ICP.
The affiliates then sell the crudes, on a term and spot basis, normally at a premium to the ICP. Other spot sales of Indonesian crudes, by equity producers or by term buyers, are done at a premium or discount to the ICP.
Traders said the immediate effect of increasing the spot element of the price formula will be a higher ICP.
This would benefit Pertamina, but might have adverse effects on spot sellers since premiums to the ICP could fall.
But some traders said the premiums achieved in the market are not necessarily linked to the ICP value, but to demand-supply situation.
Other traders said that if buyers felt the ICP was already high, they would want to pay lower premiums.
"If the ICP is high, then it will be difficult for us to ask end users to pay high premiums" said a Japanese trader.
Traders also said that equity producers, such as Maxus, Caltex Pacific Indonesia and Conoco, would also lose out if the ICP is higher. This is because they would have to pay a higher tax if the level of ICP rose.
But the long term effects of the changes to the ICP are unclear, traders said.
"We'll have to see how the APPI panelists react if Pertamina implements the new ICP," said a trader with a major oil company.