Singapore — South Korea's crude imports fell for the sixth consecutive month in March as refiners maintained modest run rates, but Asia's fourth biggest oil consumer is poised to raise refinery feedstock purchases from late second quarter as transportation fuel demand improves following the rollout of the nationwide vaccination program, while OPEC plans to release more supply from May.
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South Korea imported 71.916 million barrels, or 2.32 million b/d, of crude oil in March, down 14.5% from 86.304 million barrels a year earlier, latest data from state-run Korea National Oil Corp. showed. For the first three months, crude imports fell 15% on the year to 223.764 million barrels.
Major South Korean refiners were cautious not to abruptly raise refinery utilization rates as the companies constantly fret over potential accumulation in unwanted refined product stocks at a time when consumer and industrial fuel demand remains highly volatile and unpredictable, said a market research analyst at Korea Petroleum Association.
South Korea's third-biggest refiner S-Oil Corp. said its average run rate in the first quarter was 94.4%, a tad higher than 93.4% a year earlier, but sharply lower than the 100.8% averaged in the fourth quarter of 2020.
In addition, a sharp uptrend in Middle East crude official selling prices and strong production curb commitment displayed by OPEC+ alliance saw local refiners cutting back on Persian Gulf crude procurement volumes.
Crude imports from top supplier Saudi Arabia in March fell 24% from a year earlier and down 20.4% on the month at 19.06 million barrels, KNOC data showed. Shipments from other major Middle Eastern producers including Kuwait and Iraq also fell in March, down 12.1% and 57.9%, respectively, from a year earlier.
More Middle East supply in Q2
South Korean refiners have been consistently receiving fewer Middle Eastern term crude barrels than their original contractual volumes over the past year as Persian Gulf suppliers maintained strong discipline over production levels. However, the refiners said they were hopeful that full contractual volumes would be met from as early as May, if not June or July onwards.
OPEC and its allies have the green light to ease back on their production cuts after ministers on April 27 endorsed previously agreed plans to boost crude oil output from May. The alliance intends to pump some 2 million b/d more crude oil by July.
In addition, South Korean refiners were confident that Middle East crude OSPs will likely undergo a correction over the coming trading cycles as the physical Dubai crude market structure tumbled to a nine-week low.
The spread between front month Platts cash Dubai and same-month Dubai swap fell to 49 cents/b on April 28, the narrowest since 33 cents/b on Feb. 24, Platts data showed.
Reflecting the increased supply outlook and expectations of easing prices, South Korea could import at least 70 million barrels from Saudi Arabia in Q2, up from 64.51 million barrels imported from the OPEC Kingpin in Q1, according to multiple South Korean refinery and trading sources surveyed by Platts.
South Korean refiners are also poised to raise feedstock imports from the US as the sharp rise in the Brent-Dubai price spread makes North American supply attractive for Asian buyers, while improving gasoline and diesel demand calls for more middle distillate-rich feedstocks such as WTI Midland and Eagle Ford, refinery and industry sources said.
South Korea's US crude imports in March surpassed the 11 million barrel/month mark for the first time in almost a year, the KNOC data showed. The country received 11.206 million barrels from the US last month, up 28.9% from 8.693 million barrels imported in February.
South Korea's auto fuel demand staged a rebound in March with the start of national COVID-19 vaccination program allowing increased mobility and driving activity to some extent.
The country's gasoil demand rose 0.4% on the year to 13.05 million barrels in March, while gasoline demand also rose 13.3% from a year earlier to 6.51 million barrels, the KNOC data showed.
In addition, the current wide Brent-Dubai price spread also makes US crude an attractive feedstock option as South Korean refiners typically buy North American crude on Dubai pricing basis, light sweet crude and condensate trading managers at two major South Korean refiners said.
The Brent/Dubai EFS -- a key indicator of Brent's premium to the Middle Eastern benchmark -- averaged $3.19/b to date in April, on course to set the highest monthly average since $3.34/b in November 2019, Platts data showed.
South Korea's top 10 crude suppliers (Unit: '000 barrels)
*Total includes other suppliers
Source: Korea National Oil Corp.