South Korea on track to phase out Russian crude imports amid ample US, Saudi supplies

South Korea is on track to phase out Russian crude imports as domestic refiners boost US and Saudi purchases to meet high operation rates, leading the world's fourth biggest crude importer to cut April shipments from the non-OPEC producer by around half, industry participants said.

South Korea's April crude imports from Russia plunged 46.7% year on year to 4.33 million barrels, latest data from state-run Korea National Oil Corp. showed. Russian crude shipments declined 21% year on year to 16.20 million barrels during the first fourth months of 2022.

Most April arrival cargoes were purchased prior to the start of the Russia-Ukraine conflict. It would be difficult to terminate Russian oil imports over the near term as certain volumes are tied to quarterly and half yearly term contracts, refinery feedstock managers at major South Korean refiners told S&P Global Commodity Insights. The feedstock managers declined to be identified because the sensitive nature of oil trade with Russia.

South Korea will eventually halt Russian oil purchases as many companies look to avoid trade, logistical, legal, and financial complications that could affect corporate reputations, an official at a major South Korean refiner said.

Cutting Russian crude supply will not have a major effect on the South Korean refining industry and its economy as the light and medium sweet Far East Russian grades, including ESPO, Sokol and Sakhalin blend, make up less than 4% of South Korea's refinery feedstock imports, according to the feedstock managers.

South Korea imported 85.89 million barrels, or 2.86 million b/d, of crude in April, up from 83.36 million barrels, a year ago. The imports rose for the seventh consecutive month year on year in April.

The country's total crude imports gained 12.5% year on year to 345.52 million barrels in the first four months of the year, as local refiners ramped up crude throughput and run rates to capture robust product cracks and lucrative export margins.

US, Middle Eastern crude

South Korean refiners have a wide North American crude trading network, while Middle Eastern crude term supply is rising with the gradual increase in OPEC+ production, refinery feedstock managers and analysts at Korea Trade-Investment Promotion Agency said.

South Korean refiners are likely to favor competitive US crude and import at least five-six Very Large Crude Carriers of light sweet US oil monthly, according to the feedstock managers.

The country's US crude imports gained for the 13th consecutive month year on year in April, rising 23.8% to about 11.41 million barrels, the KNOC data showed. Its US crude imports surged 45.9% year on year to 50.39 million barrels in the first four months of the year.

South Korean refiners are actively looking to raise their term crude supply intake from major Middle Eastern producers as lucrative product cracks for transportation fuels, particularly gasoil, incentivize maximum run rates.

Crude imports from top supplier Saudi Arabia climbed 17.7% year on year to 26.69 million barrels in April, marking the eighth consecutive month of an year-on-year increase, the KNOC data showed.

Crude imports from Kuwait increased 5.4% year on year to 10.37 million barrels in April. The shipments from Iraq were up 2.5% year on year at 6.49 million barrels and those from the UAE jumped 51.4% year on year to 5.96 million barrels.

Although the pace and scale of OPEC+ production is far from satisfactory for Asian end-users, the gradual increase in Middle Eastern crude output implies that there are more term barrels that South Korean refiners can request, the feedstock managers said.

South Korea's refinery feedstock imports are poised to reach around 505 million barrels in the first half of 2022, up from 468.2 million barrels in the same period a year ago, as local refiners boost crude throughput to capture robust cracking margins, according to crude traders and refinery operation managers based in Seoul, Ulsan, Incheon, and Daesan.

South Korea's top 10 crude suppliers (Unit: '000 barrels)

*Includes other suppliers

Source: Korea National Oil Corp.