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Singapore — South Korean refiner S-Oil has entered into an agreement with Saudi Aramco's trading unit to supply up to 28 million barrels of refined oil products in 2015 as part of its strategy to diversify exports amid rising competition and falling demand in its traditional markets.

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Under the deal, S-Oil will supply 10 million-14 million barrels of gasoil and 11 million-14 million barrels of light naphtha to Saudi Aramco Products Trading Co., a company official said Monday.

The official clarified that the value of the deal, which the company has pegged at Won 1.2 trillion ($1.1 billion) in its statement, is not fixed.

"The exact amount will be fixed at a later date on the basis of market price," he said.

In return for its supplies, S-Oil will buy 120,000 mt of paraxylene and 2 million barrels of heavy naphtha from the Saudi Aramco unit over the same period, the company said.

"The deal will boost S-Oil's competitiveness in the global market by taking advantage of Saudi Aramco's sales channels," S-Oil said in a statement, adding that this deal helps the refiner secure a stable buyer for its products and stable supply of raw materials for its petrochemical business.

S-Oil is South Korea's third-largest refiner. The company is 63.4% owned by Saudi Aramco subsidiary Aramco Overseas Co.

Its refining complex in Onsan on South Korea's southeast coast operates three crude distillation units and a condensate splitter with a combined capacity of 669,000 b/d.

The company sold an average 666,000 b/d of oil products, petrochemicals and lubes in the fourth quarter of 2014, up 1.4% year on year.

The company did not give a breakdown of sales by products but said its oil products usually account for 86-87% of its total product sales volume.

Of the total Q4 sales, the refiner exported 379,000 b/d. China was the top export destination in Q4, receiving 22.5% of shipments, followed by Japan at 21.8%, Australia at 16.1% and the US at 9.9%.

"The deal [with Aramco] is part of our efforts to diversify export destinations. As a reputable oil products supplier, S-Oil will seek more such deals," the company official said.

S-Oil has also been sending 457,000-531,000 mt/year of gasoline and 287,000-334,000 mt/year of gasoil to Australia under a two-year deal signed in 2013 with United Petroleum subsidiary United Terminals.

Faced with declining oil demand at home and rising competition from new refineries in the region, South Korean refiners are being forced to look at new sales avenues and markets for their products.

China and Japan have traditionally been their biggest export destinations, but supplies to China fell 8.4% year on year to 69.75 million barrels in 2014 and supplies to Japan declined 10.2% year on year to 59.76 million barrels, latest data from state-owned Korea National Oil Corp. showed.

--Charles Lee,
--Mriganka Jaipuriyar,
--Edited by Meghan Gordon,