South Korea's Feb crude imports plunge amid economic jitters as refiners seek spot discounts

South Korea's crude imports hit an 18-month low in February as sluggish economic activity dampened fuel demand, while the refining industry sought to optimize margins by sourcing discounted spot cargoes amid tariff hikes and a narrow Brent-Dubai price spread, industry sources said over March 27-28.

South Korean refiners and petrochemical manufacturers imported 76.634 million barrels, or 2.74 million b/d, of crude oil in February, down 13.9% year over year, according to the latest data from the state-run Korea National Oil Corp.

February's shipments marked the smallest monthly intake of refinery feedstock since August 2023, when Asia's third-largest crude buyer imported 75.322 million barrels. The 13.9% decline also represents the sharpest drop in 18 months, following a 22.3% year-over-year decrease in August 2023.

The outlook for domestic industrial and consumer fuel demand is bleak, given the sluggish manufacturing and construction activities, further compounded by weak goods and services exports.

While strong tourism demand is supporting jet fuel sales so far this year, diesel and gasoline demand are under significant pressure as small businesses struggle amid weak consumer sentiment.

The logistics and construction sectors are also facing a sharp slowdown in operations, according to middle distillate marketers at two major South Korean refiners and analysts at Meritz Securities based in Seoul.

S&P Global Ratings recently revised South Korea's 2025 gross domestic product growth forecast down by 0.8 percentage point to 1.2%, marking the largest downward revision among Asia-Pacific economies.

The US plans to raise tariffs on cars, pharmaceuticals and semiconductors, with the most significant impact on GDP growth expected for South Korea, primarily due to the automobile and semiconductor sectors, according to Louis Kuijs and Vishrut Rana, Asia-Pacific economists at S&P Global Ratings.

Additionally, feedstock managers at refiners and petrochemical manufacturers, including Hanwha Total, said that South Korea's currency weakness is driving up feedstock procurement costs and negatively impacting overall refining margins.

The dollar-won exchange rate surged to Won1,487 during intraday trading in Seoul on Dec. 26, 2024, marking the highest level in 15 years and nine months. The currency pair was last quoted at Won1,467.26 at 1 pm local time on March 28.

"Bleak macroeconomic conditions bode ill for domestic middle distillate sales, while a weak currency is hurting feedstock procurement economics and cracking margins. Refinery runs and crude throughput may need to be revised downward, depending on how product export outlooks shape up," said a linear programming model strategist at a major South Korean refiner based in Ulsan.

Search for attractive spot discounts

In an effort to maximize refining margins, local refiners are actively exploring highly economical spot cargo offers globally. The recent sharp decline in the Brent-Dubai price spread is favorable for purchasing sweet crudes from the US, Oceania and other regions.

Several South Korean refiners have indicated plans to procure more Mexican crudes at attractive prices, as suppliers of Maya and Isthmus crudes may need to rely more on Asian buyers if exports to the US become difficult or unprofitable due to the Trump administration's tariff hike plan.

In February, South Korea imported 1.96 million barrels of crude oil from Mexico, more than double the 772,000 barrels purchased a year earlier, KNOC data showed.

Traders and feedstock managers recently noted that Iraq's Basrah Medium crude appears attractive in the spot market, as recent monthly official selling prices for the Iraqi heavy sour grade were relatively more economical than similar grades offered by other major Persian Gulf suppliers.

Crude imports from Iraq rose 14.6% year over year to 9.7 million barrels in February, according to KNOC data.

Shipments from the US, primarily light sweet WTI Midland crude, remained robust in February, with 12.3 million barrels, or six VLCCs.

The global sweet crude complex is becoming increasingly attractive due to the sharp downtrend in the Brent-Dubai price spread, feedstock managers and linear programming model strategists at two major South Korean refiners said.

They added that multiple VLCCs of WTI Midland crude would be consistently purchased in the spot market every trading cycle, with numerous trading opportunities in the West African, Southeast Asian, Oceania and South American sweet crude markets.

The Platts-assessed Brent/Dubai exchange of futures for swaps spread -- a key indicator of Brent's premium/discount to the Middle Eastern benchmark -- has been trending sharply lower in recent weeks, falling to minus 18 cents/b on March 20, the lowest level since minus 19 cents/b on Aug. 24, 2024. Platts is part of S&P Global Commodity Insights.

The sweet-sour crude benchmark spread was last assessed at 32 cents/b on March 27.

South Korea's top 10 crude suppliers in February

South Korea's top 10 crude suppliers over January-February

*includes other suppliers

Source: Korea National Oil Corp.