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South Korea's exports of refined oil products rose 16% year on year by volume in October, the biggest increase in 21 months.

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However, many of the sales were done on a spot basis, at lower prices than in previous months, as the country's refiners drew down their inventories and as lower margins and refinery runs in China saw the country import more products from South Korea, industry sources said Thursday, November 26.

The 16% rise -- the biggest since January 2013's 18.7% year-on-year increase -- saw South Korea's product exports reach 41.34 million barrels in October, or an average 1.33 million b/d, up from 35.64 million barrels a year earlier, according to data released earlier this week by state owned Korea National Oil Corp.

The October total was also up 7.7% from 38.38 million barrels in September, and marked the fourth consecutive month of year-on-year growth in South Korea's product exports.

Over the first 10 months of this year, South Korea exported 369.69 million barrels of refined products, up 3.3% from 357.99 million barrels in the same period last year. CHINA DEMAND GROWS AS REFINERY RUNS FALL

"The rise in South Korea's oil products exports was attributable to Chinese refiners lowering runs on weak margins due to lower oil prices," a refining source said.

"Chinese refiners have recently lowered their run rates to 77-80%, from 82-87% last year, and reduced domestic supplies of oil products, which led to more shipments from South Korea," the source added.

South Korea's oil products shipments to China last month jumped 29.5% year on year to 6.58 million barrels, up from 5.08 million barrels a year earlier.

The increase was driven mainly by a surge in naphtha exports to China, which soared to 2.18 million barrels in the month, up from just 170,000 barrels in October last year.

Exports of gasoil to China also increased sharply in October, rising 70.5% year on year to 51,490 barrels while sales of asphalt rose 19% to 1.22 million barrels.

South Korea also exported 35,520 barrels of LPG to China last month, compared with no shipments a year earlier.

Exports of LPG to China rose 7.7% year on year to 6.96 million barrels in September, after falling 16% to 5.5 million barrels in August.

"China returned to being a net oil product exporter of 820,000 mt in October, from a net importer of 320,000 mt in September," the same source said.

"Chinese refiners are unlikely to raise run rates because of their poor earnings in the third quarter. China may swing to being a net oil products importer in November due to seasonal demand, and South Korea's exports to China would remain solid next month," he predicted.


In addition, South Korean refiners sold more products at relatively low prices on the spot market, mainly in Singapore, in order to reduce inventory levels which had risen on the back of sluggish domestic demand and lackluster exports and for the past several months, the source said.

Product shipments to Singapore increased 35.2% year on year to 7.26 million barrels in October, up from 5.37 million barrels in October 2013.

This followed year-on-year increases of 58.5% in September, 6.5% in August and 28.2% in July.

South Korea's exports to Japan last month also posted double digit growth, rising 13.8% year on year to 4.86 million barrels, while October shipments to the US increased by 23.2% year on year to 2.34 million barrels.


In addition, recent refinery closures in Australia saw South Korea's October product exports to that country double to 4.84 million barrels, up from 2.42 million barrels a year earlier.

South Korean refiner S-Oil will sell 457,000-531,000 mt/year of gasoline and 287,000-334,000 mt/year of gasoil to Australia four two years under a deal signed last year with United Petroleum subsidiary, United Terminals.

"About 50% of the agreed volume was already exported to Australia and the other half will be shipped for the next one year," an S-Oil official said Wednesday.

Leading South Korean refiner SK Innovation said it also aims to increase its product exports to Australia, as well as to Myanmar and other Southeast Asian nations.

With domestic demand lackluster and expected to remain sluggish, exports are crucial for South Korea's refiners, an official at the Korea Petroleum Association said this week.

South Korea's overall oil product consumption in October fell 2.3% year on year to 67.06 million barrels, or an average 2.16 million b/d.

Over the first 10 months of the year the country consumed 678.53 million barrels of oil products, almost unchanged from 678.88 million barrels in the year-ago period.

Fuel oil consumption dropped 45.5% year on year to 1.73 million barrels in October, while kerosene demand fell 11.9% to 1.46 million barrels.

"Demand for fuel oil and kerosene keeps falling due to environmental regulations and relatively high prices," the KPA official said.

In contrast gasoil consumption grew 1.1% year on year to 12.62 million barrels in October and gasoline demand rose 2% to 6.27 million barrels, according to the KPA.

--Charles Lee,
--Edited by Haripriya Banerjee,