S. Korean buyers seek more Brent-linked crude to replace Mideast oil
Oil buyers in South Korea are expected to take advantage of relatively cheap Brent against Dubai and step up purchases of low-sulphur crude in early third quarter, reducing demand for the Middle East oil, four refining sources said on Friday.
Refiners in the world’s fifth largest crude oil importer are seeking crude from the North Sea and Africa, they said, which could help reduce surplus oil in Europe that was accumulated during the peak refinery maintenance season.
“We are actively looking at Brent-related crude grades,” said Kim Woo-kyung, a spokeswoman at SK Innovation, owner of South Korea’s top refiner SK Energy.
SK Energy bought its first Russian Urals crude in a decade earlier this year.
An official from another South Korean refinery said they are also considering buying Brent-linked crude such as those from Africa as prices of Brent oil have weakened. He declined to be named due to the sensitivity of the matter.
A slowdown in China’s oil demand also created more opportunities for South Korean buyers to purchase arbitrage supplies, a third buyer said.
The premium for June Brent to Middle East crude benchmark Dubai dropped below $1 a barrel this month, the narrowest since August 2015, prompting some buyers to switch to sweet crude which is easier to process. DUB-EFS-1M
Brent’s market structure is also in a wider contango than that for Dubai, making long-haul shipments feasible. In a contango market, oil becomes more expensive in later months.
Six million barrels of North Sea crude were loaded in April for Asia, with another 2 million barrels planned to be loaded next week onboard supertanker Sara for South Korea, trade flow data on Thomson Reuters Eikon showed.
Another 1 million barrels each of Urals crude and Libyan El Sharara crude will arrive at Yeosu, South Korea, in May, the data showed.
“There are still some arbitrage cargoes to Asia arriving in July,” the third buyer said, referring to oil from Europe and the United States.
Hyundai Oilbank bought the country’s first import of U.S. Southern Green Canyon (SGC) crude this year.
South Korean refiners also receive freight rebates from the government for shipping non-Middle East crude on supertankers as an incentive to diversify imports away from the Gulf.
South Korea imports more than 80 percent of its oil from the Middle East.
Source: Reuters (Reporting by Jane Chung in SEOUL and Florence Tan in SINGAPORE; Editing by Subhranshu Sahu)