South Korean, Thai refiners wary of CPC Blend imports as Red Sea risks persist

South Korean and Thai refiners have been hesitant to regularly import CPC Blend crude from the Mediterranean market because the Israel-Hamas ceasefire agreement does not guarantee shipping security in the Red Sea, industry and trade sources said over Jan. 20-21.

Iran-backed Houthi militants have said they will only target vessels with strong links to Israel following the Gaza ceasefire deal between Israel and Hamas.

However, many Asian crude buyers believe that security risks for tanker voyages around the Red Sea are not diminishing, and shipping insurance costs remain high, traders based in Singapore and feedstock managers at South Korean and Thai refiners said.

According to an official at South Korea's top refiner, SK Innovation, there is no absolute guarantee that tankers would sail safely through the Red Sea area for deliveries to Asia. CPC Blend crude, along with all other Mediterranean crude grades, would still have to take the much longer Cape of Good Hope route, making it inefficient and expensive.

CPC Blend crude is first delivered from production facilities to the Russian Black Sea port of Novorossiisk via the Tengiz-Black Sea pipeline, which stretches over 1,500 km. Prior to the Israel-Hamas tensions, the barrels typically sailed through numerous maritime routes, including the Black Sea, the Mediterranean, the Suez Canal, the Red Sea, the Indian Ocean and the South China Sea before reaching North and Southeast Asian ports.

South Korea's CPC Blend crude imports have sharply fallen over the past year; and the light, sweet Kazakh crude is unlikely to prominently feature in future feedstock procurement baskets for the time being due to unattractive cracking economics and high logistical costs, the SK Innovation official said.

In the second half of 2024, South Korea imported 17,000 b/d of CPC Blend crude, down 63% from the first half of last year and 75% lower than the 69,000 b/d purchased in the second half of 2023, according to the latest data from the state-run Korea National Oil Corporation. SK Innovation and Hyundai Oilbank are among Asia's regular buyers of CPC Blend crude, and South Korea is the biggest Asian importer of this light sweet crude.

Thai imports

Thailand bought about 1,805 b/d of CPC Blend crude in 2023, but refineries in Southeast Asia's second-largest oil consumer shunned the light sweet Kazakh crude in 2024, according to the latest data from Thai customs.

"CPC Blend was never really a staple feed for the Thai refinery system, and it would not make sense to invest and risk so much for minor supplementary feedstock options like this," said a feedstock management source at a state-run Thai refiner.

Platts, part of S&P Global Commodity Insights, assessed CPC Blend on a CIF Augusta basis at a discount of $1.955/b to the Dated Brent strip on Jan. 20. The discount has averaged $1.6/b so far in January, compared with an average discount of 88 cents/b in December 2024.

Despite weak buying interest in CPC Blend crude in the Mediterranean market, Thailand continues to take various light, sweet crude grades from Libya and Azerbaijan.

Libya's El Sharara, Mesla Blend, and Mellitah condensate, as well as Azerbaijan's Azeri Light, are typically delivered in Suezmax or smaller tankers that pass through the Suez Canal and the Red Sea route before reaching their Far East destinations, feedstock management sources at Thai and Indonesian refiners have said.

Refinery and trade sources in Southeast Asia suggest that to mitigate logistical risks associated with the delivery of Mediterranean and North African crude, there is an option to redirect these cargoes to West African ports. Here, the barrels could be co-loaded onto VLCC tankers along with Nigerian and Angolan crude, which would then travel to the Far East via the Cape of Good Hope route.