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Fuel imports slump as consumption declines SINGAPORE - Oil traders looking for a rebound in Indonesia’s oil demand that could resuscitate moribund diesel and gasoline markets may be in for a long wait as Indonesians have quickly learned to live with less fuel. Despite hopes for a quick recovery, consumers in Asia’s fifth-biggest oil user are burning nearly 20 percent or 200,000 barrels per day (bpd) less fuel than a year ago after the government doubled retail prices last October, industry officials say.

While richer Western citizens readily pay up for record fuel costs, Indonesia’s 220 million mostly impoverished people have had to travel less, rather than part with more of their low wages. At the same time economic growth slowed in the fourth quarter and inflation remains at double digits. “We are seeing a sharp reduction in discretionary spending and it’s really hurting. It hasn’t caused any real tension yet but it remains a risk to the economy,” said Michael Chambers, head of sales at CLSA in Jakarta. “Affordability is an issue even for people who ride motorbikes.”

A fall-off in smuggling, the start-up of a new petrochemical plant and more use of natural gas and coal by power plants will also undermine demand this year for imported fuel, which meets about a quarter of the country’s needs. State oil firm Pertamina, normally Asia’s biggest buyer of gasoline and diesel, slashed February fuel imports by 40 percent versus January to about 235,000 bpd its lowest in years as domestic inventories swelled.

It cut diesel imports almost in half to a paltry 3 million barrels and gasoline by over 20 percent, hitting spot market prices and contribute to a slump in regional refinery profits. Spending cut: “US consumers can weather the high prices better due to their larger purchasing power,” said Ibnu Bramono, an analyst from FACTS Inc. “And Chinese consumers still enjoy relatively lower fuel prices compared to international prices.”

An anticipated slowdown in demand after oil prices tripled in the past four years has yet to materialise in the West, but Southeast Asian nations have seen a sharp reaction as subsidy regimes are suddenly unwound. Domestic vehicle sales in Indonesia plunged more than 40 percent last month, the sharpest fall in four years. “The government has raised fuel prices too high. My spending is increasing not only for gasoline but also for other household needs such as rice and sugar,” said Budi Sudradjat, a motorcycle taxi driver in Jakarta.

“Almost all prices of household goods are rising, making life more difficult,” says the 27 year-old, who is struggling on a daily income of 30,000-50,000 ($3.20-$5.40) rupiah. A litre of gasoline costs 49 cents a litre, up 88 percent from a year ago. And any further hikes could spark more social tension. Former autocrat Suharto was toppled in 1998 partly after the government sharply raised fuel prices.

With economic growth slowing and industrial users scrambling for alternative fuels, some oil traders are scaling back their hopes for Indonesian demand. “Indonesian demand will take time to pick up again because the economy needs time to adapt to higher energy prices,” said a veteran trader who declined to be named. Slowing economy: Indonesia, OPEC’s only net oil importer, has about 1 million bpd of refining capacity, but is forced to import fuels such as gasoline, diesel and jet-kerosene to make up for a structural shortfall and feed a ravenous power sector.

In addition to consumer demand, purchases by the industrial sector have fallen off after Jakarta liberalised those prices last summer, with some plants switching to cheaper alternatives such as gas and coal to fire their generators. “The industry is suffering at the moment particularly at these high oil prices. Profits seem to have collapsed in private banks as fourth-quarter results were poor. All these indicate some sort of recession,” said Chambers.

“I don’t think there will be much growth this year. Our economists are looking for just 2.8 percent growth.” The economy expanded by 4.9 percent in the fourth quarter, the slowest in six quarters as the removal of fuel subsidies battered consumer spending, government data showed this week.

Indonesia’s oil consumption the proxy being the sales of products included illegal fuel exports, allegedly backed by some military personnel who resold fuel obtained under heavily subsidised prices from Pertamina’s own production or overseas purchases. The amount of smuggled oil was estimated to be as much as 120,000 barrels daily, or 10 percent of total demand.

Posted in Economy @ 19 February 2006 10:59 CET by Jeroen · 'Blog' RSS feed · permalink

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