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South Korea’s crude oil imports from the US could surpass 40 mil barrels in H1 2019

South Korea will likely maintain its voracious appetite for US crude oil with at least 40 million barrels expected to reach the Asian consumer over the first half of 2019, as the import cost for lighter and sweeter North American grades have flipped to a discount against heavier Saudi grades.

According to a survey of major South Korean refiners as well as market analysts from Seoul-based securities companies and state-run think tanks, conducted by S&P Global Platts, Asia’s fourth biggest oil consumer is expected to import a minimum of 7 million/month from the US during the first half of 2019.

This is equivalent to a total of at least 42 million barrels for the first six months, close to 70% of the annual import of 60.94 million barrels in 2018.

South Korea imported a total of 20.94 million barrels of crude from the US over January-February, up from 5.85 million barrels received in Q1 2018, latest data from state-run Korea National Oil Corporation showed.

“The average is already 10 million barrels/month so far this year … even after taking the spring refinery maintenance season and the expected cut in Q2 run rates into account, imports could total at least 40 million barrels in H1,” a market research manager at Korea Petroleum Association based in Seoul said.

Industry sources and trading desk managers in Seoul indicated that the lofty Dubai benchmark price structure on the back of OPEC’s strong production cut commitments could lead to lower Persian Gulf crude intake in Q2, while competitive offers from North American crude suppliers may continue to lure local refiners.

Favorable arbitrage economics and attractive price tags bode well for increased US crude imports over the coming months, said an official from the country’s biggest refiner SK Innovation.

The spread between front and third-month Platts Cash Dubai — often used as an indicator for the strength of the Middle East sour crude market — rallied to $1.06/b Monday, the highest level since October 23, 2018, when it was at $1.09/b.

The spread between the front-month WTI swap and same-month Dubai crude swap remained in a steep discount, averaging minus $8/b in Q1.


The average import cost for US crude cargoes fell below that for oil from Saudi Arabia earlier this year, making a case for South Korean refiners to pick up more North American grades than heavier and sour Middle Eastern crude.

For the February shipments from the US, South Korea paid on average $62.75/b, $2.20/b less than the $64.95/b average paid for crude imported from its biggest supplier Saudi Arabia during the same month, latest data from KNOC showed.

In comparison, import costs for US crude in January averaged 26 cents/b below that for Saudi crude, KNOC data showed.

The average import cost from the US in 2018 was $72.52/b, 97 cents/b higher than the average $71.55/b paid for Saudi crude cargoes last year.

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

“Not in every trading cycle you get a chance to buy lighter and sweeter grades cheaper than heavy crudes, it’s best to make the most of it while the discount remains,” said a source at a South Korean refiner that regularly buys Eagle Ford and WTI Midland crude.


A small portion of the 20.94 million barrels of US crude received over January-February have been re-directed to Chinese buyers in recent weeks due to quality issues, refinery, port and trading sources in South Korea and China said.

Around 1.4 million barrels of the January-February shipments have been re-routed from South Korea to China, with Chinese independent refiner Hongrun Petrochemical picking up around 600,000 barrels of the supply, a company official confirmed last month.

SK Innovation and Hyundai Oilbank were said to have rejected the light sweet US Eagle Ford barrels, but both company officials declined to comment on the matter.

However, South Korean end-users have long been accustomed to dealing with the issues surrounding Eagle Ford crude contamination, such as inconsistency in the grade’s metals, and arsenic and mercury content, industry and refinery sources said.

“Also, it’s not the actual problem with the crude itself, but rather it is the complex maze of logistics involved [in bringing the oil from the production field to South Korean ports] that raises the contamination risk,” a source at another South Korean refiner that regularly buys light sweet US grades said.

South Korean end-users would rarely reject US cargoes despite the occasional quality issues, the second refinery source added.

“The latest incident was nothing but a one-off trade hiccup … we would continue to actively procure US crude oil,” the SK Innovation official said.
Source: Platts

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