South Korean refiners see US as reliable crude supplier amid tepid OPEC+ output

South Korea is expected to purchase a minimum 10 million barrels/month of US crude over the coming quarters as the country's reliance on North American supply increases amid tepid OPEC+ production levels, while competitive import costs for the US barrels bode well for end-users in times of high oil prices.

Refiners in South Korea imported 10.96 million barrels of US crude in September, up 32.6% year on year and marking the sixth consecutive month of year-on-year increase, latest data released by state-run Korea National Oil Corp. showed.

Over January-September, South Korea imported 91.552 million barrels of US crude, up 8.8% from the same period a year earlier.

With South Korea's major refiners including SK Innovation, S-Oil Corp., Hyundai Oilbank and GS Caltex all ramping up run rates to lift transportation fuel production after the government announced plans to shift to a phase of living with COVID-19 starting Nov. 9, the world's fifth-biggest crude importer will rely heavily on the US, as supply from OPEC and its alliance remains tight overall, feedstock managers at two major refiners told S&P Global Platts.

The country will likely continue importing more than 10 million barrels/month of US crude until full OPEC+ production rate is restored, the feedstock trading managers said.

Asian consumers, end-users and refiners continue to call for a more aggressive production and supply hike from OPEC+ as current oil prices appear overheated, with retail gasoline prices across major Asian cities surging to multi-year highs while consumer price indexes gather upward momentum.

The OPEC+ stuck to its original plan to increase crude oil production in November by 400,000 b/d at the previous Oct. 4 meeting, but nine major Asian refiners surveyed by Platts including SK Innovation, BPCL, Petronas, ENEOS, PetroChina and PTT said OPEC+ should ideally raise supply by at least 800,000 b/d.

Market watchers will keep a close eye on the next OPEC+ meeting scheduled for Nov. 4, where the producer alliance is expected to review its collective output decisions for December, refinery and industry officials based in Seoul said.

South Korea's crude imports from its top crude supplier Saudi Arabia rose 3% year on year to 23.794 million barrels in September, the KNOC data showed, though shipments over January-September were down 17% from a year earlier at 198.66 million barrels.

September crude imports from the UAE fell 4.9% year on year to 5.287 million barrels, while shipments from Qatar fell 19.7% to 4.32 million barrels, the data showed.

South Korea imported a total 78.627 million barrels of crude in September, down 1.5% year on year.

US crude cheaper than Saudi oil

The rise in intake from the US was also propelled by competitive prices of North American barrels relative to Saudi barrels.

The import cost for the US crude, including freight, insurance, tax and other administrative and port charges, averaged $74.04/b in September, compared with $74.63/b for Saudi crude received in the month, the KNOC data showed.

Over January-September, South Korean refiners paid on average $67.57/b for 91.6 million barrels imported from the US, while 198.7 million barrels of Saudi Arabian crude shipments during the period cost the companies $67.72/b on average, the data showed.

"In times like this when [oil] prices are overheated, every cent of discount matters... besides, US crude is superior in quality [to Saudi grades] too," a sweet crude procurement manager at a major South Korean refiner said.

Carbon neutral European crude

South Korea also received 3.095 million barrels from Norway in September, up 50% from 2.064 million barrels a year earlier. The country's second-biggest refiner GS Caltex had purchased 2 million barrels of Johan Sverdrup crude certified as carbon-neutral at the point of production for delivery in the month.

Carbon-neutral European crude and low carbon Australian condensate are rapidly gaining popularity among South Korean end-users looking to enhance and incorporate their ESG considerations, with major refiners and petrochemical makers, including SK Innovation and Hanwha Total, also considering picking up such feedstocks on a more regular basis, according to the refinery sources.

South Korea is expected to import more than 11 million barrels of crude from Norway in 2021, compared with 8.5 million barrels received in 2020, 1 million barrels in 2019 and 5 million barrels in 2018, according to multiple South Korean refinery sources and market analysts in Seoul surveyed by Platts.

SOUTH KOREA'S TOP 10 CRUDE SUPPLIERS:

(Unit:'000 barrels)

*Total includes other suppliers

Source: Korea National Oil Corp.