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Aug.8-9 weekend highway traffic falls 18% from year earlier

Refiners see domestic gasoline margins slip to negative, unlikely to further cut run rates

Singapore — Heavy rains and flash floods across various regions in South Korea could put the brakes on the country's auto fuel demand recovery since the peak of the COVID-19 cases in March-April, with refinery and industry officials expecting domestic gasoline consumption in the third-quarter to fall at least 12% from the second-quarter and year on year.

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South Korea has suffered from heavy downpours that continued for more than 50 days since late-June, marking the country's longest ever monsoon season.

The heavy rains triggered numerous cases of river overflows, small to medium-scale flash floods, as well as landslides across the nation, leaving 33 dead and 9 missing and some 7,800 residents displaced from their homes, according to the Korea Meteorological Administration.

The damages are expected to grow as more rains are forecast until mid-August or even possibly late in the month.

The prolonged rainy season has led to a sharp decline in road traffic during the summer and holiday driving season, which had already been affected by the coronavirus pandemic.

According to the state-run Korea Expressway Corp. on Aug.12, auto traffic on the country's highways dropped to an average 3.68 million vehicles/day during the Aug.8-9 weekend, down 17.9% from 4.48 million units/day in the same period a year earlier.

It was also down 18.4% from the average 4.51 million units/day a week earlier.

Reflecting the downbeat tepid road traffic volume and the prolonged downpour curbing holiday travel interest, South Korea could see its gasoline consumption tumble to around 18.5 million barrels in Q3, according to traders and fuel marketing sources at major South Korean refiners SK Innovation, S-Oil Corp., GS Caltex and Hyundai Oilbank surveyed by S&P Global Platts.

The survey estimate is equivalent to around a 12.9% fall from 21.25 million barrels consumed in Q2 and down 12.1% from 21.05 million barrels a year earlier, Platts calculation based on KNOC data showed.

"We had initially hoped auto fuel demand hit by the COVID-19 to rebound sharply in the Q3 summer and holiday driving season, but that's not going to be the case because of the lengthy rainy season," a refinery official said.

REFINING MARGINS

South Korea's domestic gasoline refining margin slipped into the negative territory as road traffic failed to live up to the peak driving season auto fuel demand expectations.

Domestic margin for gasoline was seen at around minus $0.3/b in the first week of August and minus $0.5/b a week before, down from around $5.5-$6/b a year earlier, the refinery official said.

The Asian benchmark 92 RON Singapore gasoline crack spread against front-month ICE Brent crude futures had also dipped into the red earlier this month. The Singapore crack spread fell to minus 79 cents/b on Aug.3, before recovering to $1.58/b on Aug.13.

Despite the negative margins, the South Korean refiners said they would not further cut their run rates to reduce output of refined oil products because the run rates had already been slashed earlier this year due to the pandemic.

The country's biggest oil refiner SK Energy's run rate dropped to 77% in Q2, which marked the lowest-ever operational level. The refiner had reported a 90% run rate in the same period a year earlier and 92% in Q1.

Other refiners including GS Caltex, Hyundai Oilbank and S-Oil have also reduced run rates during Q2 and July in response to sluggish domestic consumer and industrial fuel demand following the outbreak of the pandemic.