Pertamina faces steeper prices for Kuwaiti oil

PT Pertamina, Indonesia?s state oil and gas company, agreed to raise the premium it pays Kuwait Petroleum Corp. for diesel by as much as 36 percent in the second half of this year, officials involved in the negotiations said, The Jakarta Post reported on Thursday.

Pertamina will pay a premium of $1.10 a barrel over the benchmark price for diesel with a sulfur content of 0.5 percent to be delivered to Teluk Semangka, on the island of Sumatra. The Jakarta based company will pay $1.50 a barrel more than the benchmark price for the fuel to be shipped to Situbondo, East Java, said company officials who asked not to be identified.

Kuwait Petroleum won the increase after rivals Saudi Aramco and Abu Dhabi National Oil Co. raised premiums for customers in Asia as economic growth spurs demand for motor fuel.

There?s a shortage of 0.5 percent sulfur diesel, or high-sulfur gasoil, as refiners in Asia are upgrading plants to reduce the amount of the pollutant in the fuel.

"High-sulfur gasoil is in shortage because of the conversion of refining capacity to produce low-sulfur gasoil," said Ong Eng Tong, a Singapore-based consultant to Hamburg-based oil trader Mabanaft International GmbH & Co. "That?s tightened the market for high-sulfur gasoil."

The premiums include shipping costs for 18 million barrels of diesel, or gasoil, containing 0.5 percent sulfur, in three cargoes which will be delivered by Kuwait Petroleum every month.

Pertamina agreed to pay premiums of 90 cents and $1.10 a barrel more than its benchmark price for diesel supplied to Teluk Semangka and Situbondo, respectively, in the first half of this year, company officials said. The benchmark price is based on the average assessments of oil-pricing services Platts and Argus Media in Singapore.

Pertamina and Kuwait Petroleum hold talks every six months to agree on the premium to be paid for the fuel. Kuwait Petroleum will supply 21.6 million barrels of diesel to Pertamina in 2006, unchanged from this year officials said. (*)