South Korea maintains robust crude import trend as refiners cheer lucrative product cracks
South Korea is undeterred by surging crude prices and the world's fourth biggest crude importer aims to actively secure ample refinery feedstocks as local refiners maintain relatively high run rates to capture lucrative Asian refining margins, industry and market participants said over April 18-21.
South Korea received 11.472 million mt, or 84.09 million barrels, of crude oil in March, up 16.9% from 71.92 million barrels imported a year earlier, latest data from Korea Customs Service showed.
The March shipments were also up 6.1% from 79.28 million barrels imported in February, while crude imports during the first three months increased 15.4% year on year to 258.17 million barrels, the customs data showed.
The country's crude imports are likely to maintain the upward momentum over the coming months as local refiners actively conduct spot crude purchases on top of their term supply contracts in an effort to maintain high throughput and run rates, with the primary goal of capturing robust regional refining margins and expanding oil product export opportunities.
Second-month Singapore gasoil swap crack against Dubai swaps averaged $27.80/b to-date in April, compared with the first-quarter average crack spread of $19/b and the 2021 average of $9.60/b.
Global crude supply is tight but oil product supply is even tighter, making an ideal market condition for highly sophisticated South Korean refineries capable of maximizing high-end fuel output and sales, according to middle distillate marketers at major South Korean refiners including S-Oil and SK Innovation.
Local refiners and condensate splitters processed 79.85 million barrels, or 2.58 million b/d, of crude in February, up 8.7% from 73.48 million barrels a year earlier, rising for the seventh straight month, latest data from state-run Korea National Oil Corp showed.
Refining margins are running high as various financial sanctions against Moscow are limiting Russian oil product trades, while Chinese fuel production and exports are low amid lockdowns in the country's major cities, one refinery official said, indicating that margins for diesel and jet fuel in particular are outperforming due to rapidly improving people mobility across Asia and Oceania.
Russian products are scarce and the sharp decline in Chinese middle distillate supply in the regional market is a boon for South Korean transportation fuel exporters, the middle distillate marketers said.
China's gasoil, gasoline and jet fuel exports tumbled 52.7% in the first quarter from the same period of 2021, amid a steep reduction in export quota allocations, S&P Global Commodity Insights reported previously, citing latest data from General Administration of Customs.
In addition, China's crude throughput fell 1.5% year on year to 13.96 million b/d in the first quarter due to the dual blow of war-led lofty global oil prices as well as lockdowns imposed as a result of fresh outbreaks of COVID-19, S&P Global reported previously.
South Korea's petroleum product sales to Australia are expected to reach a multi-year high in first-half 2022 as the Oceania fuel importer heavily favors South Korean products over Chinese supply as trade and geopolitical tensions between Canberra and Beijing persist, according to refinery sources in Seoul and fuel distribution managers in Sydney and Brisbane.
South Korea is estimated to have exported around 13.6 million barrels of oil products to Australia in Q1, up 77% from a year earlier and the highest sales volume in the quarter since 15.7 million barrels were exported during the first three months in 2017, according to marketing information gathered from major South Korean refiners by S&P Global and latest data from KNOC.
Australian fuel import and distribution companies have been enquiring for incremental cargoes from South Korean refiners and fuel traders in recent few trading cycles as the sharp reduction in China's fuel export quotas and most importantly the prolonged Canberra-Beijing tensions prompt Australia to heavily favor its close economic and geopolitical ally South Korea, according to the refinery middle distillate marketers.
In 2021, South Korea and Australia upgraded their bilateral relationship to a comprehensive strategic partnership.
Tensions between Canberra and Beijing have once again escalated in recent weeks, after China signed a security pact with the Solomon Islands in a move that could see China establishing a military base in close proximity to Australia's mainland.
The customs data showed South Korea's import of US crude in March, mostly light sweet grades, slipped 3% from a year earlier to 10.87 million barrels. However, South Korean refiners combined have been receiving at least five VLCCs of US crude every month since June 2020, with the exception of December 2021.
South Korea's crude imports from its top supplier Saudi Arabia, except shipments from the Saudi-Kuwaiti Neutral Zone, jumped 66.2% year on year to 31.02 million barrels in March, the customs data showed.
KNOC will release detailed oil trade data for March, including crude imports from Russia, in the week of April 24.
South Korea's monthly crude imports (Unit: million barrels)
Source: Korea Customs Service, Korea National Oil Corp.
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