Analysis: South Korea’s 2017 crude imports confirm diversification efforts
South Korea’s strong desire to diversify its crude oil import sources became crystal clear with latest government data confirming that Asia’s fourth-largest energy consumer imported less barrels from its traditional Middle Eastern suppliers in 2017, while domestic refiners sharply raised purchases from North America last year.
The US and Russia stood out from the preliminary data released by Korea Customs Service earlier this week, as South Korea imported significantly more cargoes from the two non-OPEC producers in 2017, while major Persian Gulf producers saw their market share fall.
For full-year 2017, South Korea’s crude imports from its biggest supplier Saudi Arabia fell 1.7% to 319.02 million barrels, compared with 324.45 million barrels in the previous year, customs data showed.
Four major Middle Eastern producers — Saudi Arabia, Kuwait, Iraq and Qatar — represented 61.26% of South Korea’s total crude imports in 2017, down from 66.71% in 2016.
On the contrary, South Korea has imported 1.77 million mt, or around 13 million barrels, of crude from the US in 2017, about four times higher than in 2016. Shipments from Russia grew to 140,000 b/d last year from 112,000 b/d in 2016.
Overall, South Korea imported a total 148.86 million mt (1.1 billion barrels) of crude oil in 2017, up 3.29% year on year. The growth rate in 2016 was 4.44%, while in 2015 it was 10.61%, the data showed.
Asian crude traders were not too surprised by the latest statistics from Seoul as South Korean refiners had long been under pressure to diversify crude procurement sources amid strengthening Brent pricing complex and tightening Middle Eastern crude exports amid OPEC’s ongoing commitment to limit output.
“We all know South Korean refiners were one of the most active Asian buyers of North American crude oil last year … the customs data simply proved their arbitrage activities in 2017. It was in fact economical for all Asian refiners to buy cheaper WTI-linked grades last year,” said a sweet crude trader based in Singapore.
MARKET CONDITIONS STILL FAVOR US CRUDE INTAKE
Asian refinery and trade sources pointed out that current market conditions would continue to favor South Korean, as well as other regional end-users, to continue shopping for some spot arbitrage cargoes in North America.
Several Northeast Asian sour crude traders said there is less incentive for regional end-users to pick up many light sweet crude cargoes from the European and West African markets as the Brent crude complex appears expensive.
The sustained strength in benchmark Brent prices following the shutdown of the North Sea Forties pipeline in the second half of December has pushed the Brent/Dubai Exchange of Futures for Swaps, as well as the Brent/NYMEX crude spread to multi-month highs.
The Brent/Dubai EFS — a key indicator of Brent’s premium to the Middle Eastern benchmark that often serves as a barometer of the strength in the European crude complex — averaged $3.40/b so far this month, the highest since June 2016 when it averaged $3.57/b.
Meanwhile, front-month ICE Brent/NYMEX spread stood at $5.51/b at 0300 GMT Friday. In comparison, the spread averaged $3.53/b in 2017, S&P Global Platts data showed.
A weaker WTI versus Brent and Dubai typically makes North and Central American crude grades priced against the US benchmark more competitive.
“Asian buyers often look for arbitrage barrels from the North Sea, Mediterranean and West Africa as well, but with such high Brent prices, they will focus more on North American supplies,” said a condensate trader at a South Korean refining and petrochemical company.
In addition, the recent string of monthly official selling price hikes from major Middle Eastern producers could further prompt South Korean refiners to cut their dependency on Persian Gulf supplies and raise their US crude intake going forward, market participants said.
Earlier this month, Saudi Aramco raised the OSP differentials for its Arab Super Light and Arab Extra Light crude grades loading in February and destined for Asia by 20 cents/b and 10 cents/b respectively to $5.95/b and $3.15/b to the Oman and Dubai average.
Abu Dhabi National Oil Co. has set its retroactive December OSPs for Murban and Das Blend grades at $64.85/b and $64.50/b respectively, equivalent to premiums of $3.25/b and $2.90/b to Dubai or 42 cents/b higher compared to November.