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South Korea takes less Saudi, US crude in Aug as economic indicators paint weak oil demand outlook


Tepid economic activity puts pressure on fuel demand, crude runs

Refiners mull lifting product exports if domestic sales dwindle

Saudi crude OSP differentials seen expensive

  • Author
  • Gawoon Vahn    Irene Tang    Mei huey Ng    Charles Lee
  • Editor
  • Debiprasad Nayak
  • Commodity
  • Oil Shipping

South Korea's August crude imports tumbled 22.3% from a year earlier with refiners taking less shipments from Saudi Arabia and the US amid growing concerns that fragile consumer sentiment and tepid economic activity would put significant pressure on the domestic oil demand, industry sources said Sept. 26-29, based on the latest data from Korea National Oil Corp.

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The world's fourth-biggest crude buyer imported 75.33 million barrels, or 2.43 million b/d, of crude in August, compared with 96.92 million barrels received a year earlier, KNOC data showed. The August shipments marked the smallest in 14 months since 74.06 million barrels were imported in June 2022.

For the first eight months, South Korea imported 661.43 million barrels of crude, down 5% from the same period a year earlier.

Middle distillate marketers at major South Korean refiners including S-Oil and SK Energy, as well as fixed-income market analysts at two Seoul-based securities firms indicated that refinery runs and crude throughput would be capped heading into the fourth quarter as domestic transportation and industrial fuel demand outlook is downbeat with high household debt and inflation concerns restraining private spending as well as new property construction projects.

Rising oil prices typically damage consumer sentiment in South Korea in a much bigger scale than in other OECD and developed nations as Asia's fourth biggest economy depends almost entirely on imports for its crude oil requirements. A sharp upward momentum in retail diesel and gasoline prices will likely hit consumer demand through the rest of the year, while South Korea's surging household debt would also translate to consumers cutting down on private vehicle usage, the middle distillate marketers told S&P Global Commodity Insights.

The retail pump price of gasoline averaged Won 1,776.3/liter ($1.32/liter) in the week of Sept. 10, compared with the highest weekly average price of Won 1,780.2/liter ($1.324/liter) in the week of Aug. 14 last year, KNOC data showed.

In addition, factory runs and high-tech manufacturing plant operation rates may continue to dwindle amid tepid goods and services exports to China, painting a bleak outlook for industrial and logistics fuel demand, refinery sources and financial market analysts added.

The S&P Global South Korea Manufacturing PMI eased to 48.9 in August from July's 49.4 and remained below the no-change mark of 50.0, signaling a deterioration in overall business conditions and extending the current downturn to 14 months.

Less Saudi, US, Kazakh crude

A bleak domestic oil demand outlook may put pressure on refinery throughput for the rest of the year, prompting trading teams to nominate to lift just the very minimum monthly contractual term crude supply from major Middle Eastern suppliers, according to feedstock managers at major South Korean refiners.

South Korea received 27.73 million barrels from its top supplier Saudi Arabia in August, down 28.8% from a year earlier and marking the second consecutive month of a year-on-year decline, KNOC data showed.

"Saudi crude official selling prices are rather expensive too... as long as Saudi Arabia maintains its firm production control stance, both outright and OSP price differentials would trend higher, putting pressure on Asian margins for cracking sour grades," said a feedstock manager at a South Korean refiner operating in Ulsan.

Elsewhere, crude imports from the US, mostly light sweet grades, also dropped 23.3% year on year to 10.789 million barrels. The volume marked the smallest in 11 months since 7.108 million barrels received in September 2022.

Still, refiners could lift their staple Middle Eastern sour crude and light sweet US crude intake if they aim to raise oil product exports to make up for any decline in domestic sales, as long as regional cracks hold up, a market research analyst at Korea Petroleum Association said.

Meanwhile, South Korea's CPC Blend crude imports from Kazakhstan tumbled to 2.072 million barrels in August, almost half the 4.111 million barrels received a year earlier and marking the smallest monthly shipment of the light sweet grade since September 2022.

The drop was mainly attributable to the shortage of tankers in the Black Sea and the surge in shipping insurance costs after a sea drone attack on Russian Navy ships in the area during early August, which led to a suspension at the port of Novorossiisk.

CPC Blend crude first gets delivered from production facilities to the Russian Black Sea port of Novorossiisk via the Tengiz-Black Sea pipeline that stretches over 1,500 km. The barrels then sail 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 South Korean ports.

South Korean refiners continued to shun Russian crude oil, as the country received zero cargoes from the non-OPEC producer for the ninth consecutive month in August, KNOC data showed.

South Korea's top 10 crude suppliers (Unit: '000 barrels)

Supplier Aug-23 Aug-22 Change (y/y) Jul-23 Change (m/m)
Saudi Arabia 27,732 38,950 -28.8% 28,790 -3.7%
Kuwait 10,551 8,786 20.1% 10,046 5.0%
UAE 9,533 9,194 3.7% 5,790 64.6%
US 8,276 10,789 -23.3% 12,400 -33.3%
Qatar 7,098 7,103 -0.1% 6,143 15.5%
Iraq 6,896 7,124 -3.2% 6,860 0.5%
Kazakhstan 2,072 4,111 -49.6% 4,212 -50.8%
Australia 1,130 3,313 -65.9% 691 63.5%
Brazil 965 993 -2.8% 966 -0.1%
Algeria 630 600 5.0% 0 0.0%
Total* 75,332 96,917 -22.3% 81,760 -7.9%

Supplier Jan-Aug 2023 Jan-Aug 2022 % Change
Saudi Arabia 226,068 233,591 -3.2%
US 89,647 89,651 0.0%
Kuwait 75,348 81,872 -8.0%
UAE 65,969 54,812 20.4%
Iraq 58,136 54,295 7.1%
Qatar 51,733 35,146 47.2%
Kazakhstan 32,522 33,569 -3.1%
Mexico 15,913 26,743 -40.5%
Australia 15,901 16,682 -4.7%
Brazil 13,072 15,596 -16.2%
Total* 661,431 696,607 -5.0%

*Includes other suppliers

Source: Korea National Oil Corp.