RI crudes benefit from high utility demand
RI crudes benefit from high utility demand
SINGAPORE (Reuters): Spot premiums for Indonesian crudes touched their highest level in July pushing up much needed oil revenues even as international prices sink amid cuts to Asian refinery runs, traders said yesterday.
Traders said the heavier Indonesian crude were propped up by strong demand from utility companies as power demand rises in north Asia as air-conditioners use are ramped up in summer.
But outright prices of the main crudes such as Minas and Widuri are still weighed down by the high supplies and are only at a two-month high.
Spot premiums, on the other hand, rose last week to a near eight-month high of around 60 cents per barrel over the official Indonesian Crude Price (ICP), traders said.
Minas, the main crude produced, traded at 20 cents premium in June to the ICP, while in May it was at a discount.
"It will definitely benefit Indonesian oil revenues to an extent, they're at least getting that extra 60 cents per barrel premium for their crudes," said a trader with a major oil company.
On Thursday, in its revised budget for 1998/99, Indonesia said oil revenue would rise to 49.71 trillion rupiah (US$4.57 billion) from 34.58 trillion, mainly because of the fall in the value of the rupiah.
The budget had an assumed price of oil of $13.00 per barrel, compared to current assessment of $12.60 for Minas which accounts under a third of Indonesian crude production.
The rising spot premiums of Minas and other grades were in the midst of depressed oil product prices in Asia, which has forced regional refiners to slash operating rates for July, and probably August.
The main push for the Indonesian crudes was an increased demand for direct burning fuel by north Asian utilities as they replenish stocks.
North Asian utility companies use nuclear, hydroelectricity and oil for power generation.
The bulk of Indonesian crudes are heavy grades suitable for power generation, and are popular with utility providers because of their low sulphur content which means the oil can be burned directly.
Utilities in Japan operate nuclear power plants at stable rates to meet base demand, and adjust production from power plants that run on oil to cover peak demand in summer.
"The hot weather recently forced them to run down their inventories of crude oil, and now they have to come out to replenish their stocks," said a trader.
"That caused the spike in the burning crude prices last week," he added.
Indonesia's emergence with a larger than predicted export volume of Minas at the end of last week put a slight dampener on the spot prices, pulling Minas premiums down to around 40 to 50 cents on Monday.
Indonesia allocated around 32,000 barrels-per-day (bpd) of Minas crude for August, higher than the 28,000 bpd allocated for July.
It cut the August export allocations of its other heavy grades Widuri, Cinta and Duri month on month, but traders had already expected this, so it failed to boost prices further.
But the current August premiums of the heavy Indonesian are still higher compared to the past few months, which should maintain Indonesia' oil revenues, traders said.
"We have to watch the Japanese weather and how much the utilities need to buy to rebuild stocks," said a trader "But I think it can still get very hot, and prices could see a further boost."