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South Korea may continue to favor US, Kazakh crude oil

South Korean refiners may continue to actively diversify their crude oil supply sources in 2019 as they are willing to buy more cargoes from the US and Kazakhstan following the latest OPEC production cut agreement.

The sharp downturn in international outright crude prices in the fourth quarter may have taken some pressure off many Asian crude importers who were seeking cheaper oil outside the traditional Middle Eastern market, but South Korean refiners highlighted the importance of keeping up their feedstock diversification efforts next year.

SK Innovation would continue to seek alternative sources to replace Iranian crude as the recent waivers on Iran sanctions were only temporary and would only allow a small volume of imports from the Persian Gulf producer, an official at the country’s biggest refiner said.

“We are going to keep up our efforts to diversify crude supply sources next year, which may be focused on Kazakhstan’s CPC Blend and light sweet US grades,” the SK Innovation official said.

The country’s second-biggest refiner GS Caltex also said that Kazakhstan was likely to remain one of its major supply sources outside the Persian Gulf region.

Asian buyers should secure various supply routes as Middle Eastern crude production and export volumes may not be consistent next year, a trading source at the company said.

Earlier this month in Vienna, OPEC and its allies led by Russia agreed to implement 1.2 million b/d of production cuts from January 2019.

OPEC will cut 800,000 b/d of combined crude oil production from October levels, with Russia and other producers also cutting 400,000 b/d for a combined reduction of 1.2 million b/d.

The UAE’s Abu Dhabi National Oil Company for one, recently slashed its customer crude allocations for January for three of its export grades.

ADNOC’s light sour Murban grade will receive a 15% cut in allocations, while Das Blend crude will get a 5% reduction, a company source said earlier.

Kazahkstan’s flagship CPC Blend, as well as Eagle Ford, Light Louisiana Sweet and WTI Midland crudes from the US have gone regularly to South Korea in 2018.

Asia’s fourth biggest energy consumer imported a total of 43.59 million barrels of crude from Kazakhstan over January-October this year, more than double the 19.06 million barrels received during the same period a year earlier, according to latest data from state-owned Korea National Oil Corp.

The country also received close to 41 million barrels of crude from the US over January-October, almost a six-fold rise from 7.36 million barrels imported a year ago, the data showed.

COMPETITIVE PRICES

Industry and refinery sources in Seoul said Kazakhstan’s CPC Blend and light sweet US grades may continue to attract South Korean end-users due largely to attractive price tags.

“It wasn’t that long ago when the market was talking about a potential rise in crude prices back above the $100/b level … prices are always volatile and unpredictable and that’s why diversification must continue,” the source at the South Korean refiner said.

South Korean refiners have paid an average outright price of $73.29/b for Kazakh crude imported between January and October this year and $71.84/b for the US crude received over the same period, KNOC data showed.

KNOC’s import costs include freight, insurance, tax and other administrative and port charges.

In comparison, the monthly outright official selling prices for Abu Dhabi’s light sour Murban crude loaded during January-October averaged $74.34/b, Platts data showed.

Outright OSP for Saudi Arab Extra Light crude loaded for export to the Far East during the same period averaged $73.87/b, Platts data showed.

“[Middle Eastern] OSPs are an FOB basis price, so adding freight costs, shipping insurance and all other administration fees and tax, [Murban and Arab Extra Light] definitely look much more expensive [than Kazakh and US crudes],” a trade source based in Singapore said.

In addition, the recent slide in benchmark Brent crude prices pushed the Brent/Dubai Exchange of Futures for Swaps to multi-month lows, making a case for Asian buyers to start focusing on North Sea, Mediterranean and Central Asian grades linked to the European marker, market sources said.

“West-East freight rates are rather high but the low EFS should start encouraging refiners to look at European barrels once again … CPC Blend remains one of the most competitive light sweet grades,” a trading manager at a Thai refiner said.

The Brent/Dubai EFS — a key indicator of Brent’s premium to the Middle Eastern benchmark that often serves as a barometer of the strength in the European crude complex — averaged $1.32/b in November, the lowest monthly average since July 2017, when it averaged 90 cents/b, Platts data showed.
Source: Platts

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