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Indonesia’s Duri Oil Surges to Widest Premium Ever on Ship Rules

Serene Cheong
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Indonesia’s Duri Oil Surges to Widest Premium Ever on Ship Rules

(Bloomberg) -- Indonesia’s Duri crude surged to the biggest premium over the nation’s flagship Minas grade in at least 23 years as demand for heavy-sweet oil surges ahead of the introduction of cleaner ship-fuel rules.

Duri oil can be directly blended to make low-sulfur shipping fuel, according to a company official at Indonesia’s state-owned marketer PT Pertamina, making it popular with buyers ahead of regulations mandating the use of cleaner-burning fuel that take effect Jan. 1. September shipments were $6.82 a barrel above Minas, the biggest premium in data compiled by Bloomberg since 1996.

Duri -- a dense and low-sulfur crude -- is one of the few Indonesian grades that can be blended with other fuels to make low-sulfur fuel oil, according to a Pertamina official who declined to be named due to company policy. Other grades such as Minas are too waxy for this purpose, the official added.

In recent months, spot differentials for other heavy-sweet oil such as Pyrenees and Van Gogh has surged as refiners scrambled for crude that can be easily processed or blended to make fuel compliant with regulations known as IMO 2020. Market participants have been preparing for the biggest shift in ship-fuel standards in a generation, hoarding everything from low-sulfur fuel oil to diesel and light-cycle oil in the lead up to implementation.

Duri and Minas were popular in the 2000s as fuel for Japan’s utilities, with demand peaking in 2011 after a devastating tsunami knocked out nuclear power and prompted a surge in oil and gas-fired electricity generation. The price of Duri, which is typically set at a discount to Minas, was at a premium for a second straight month.

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