South Korea refiners cautiously upbeat on refining margins, bag ample Saudi crude in Jan

South Korea's crude oil imports in January climbed 8.6% from a year earlier, as refiners gradually increase run rates on expectations of improvement in margins, while feedstock managers continued to secure ample Saudi barrels despite the OPEC kingpin's production cut commitment throughout the first quarter.

The world's fourth-biggest crude importer took 88.63 million barrels, or 2.86 million b/d, of crude oil last month, compared with 81.63 million barrels a year earlier, marking the fifth consecutive month of year-on-year increase, latest data from Korea Customs Service showed.

The increased crude shipments early in the year came as major local refiners and market analysts were cautiously upbeat on near-term refining and oil product export margins.

"China's economic stimulus measures, coupled with firmer travel demand during the Lunar New Year holiday period, are anticipated to push up [regional] refining margins, particularly for jet fuel and diesel," an official at the country's top refinery SK Innovation said.

South Korea and Northeast Asia overall would continue to see tepid oil demand from the industrial sector as construction and manufacturing activities significantly underperform against the pre-pandemic levels. However, India's stellar economic growth and upbeat tourism across Asia should support the broad regional oil demand and margins, according to energy and commodities analysts at Meritz Securities and Industrial Bank of Korea based in Seoul.

Regional refining margins are forecast to stay at a relatively healthy level for 2024, supported by steady transport fuel demand growth and low inventory levels, according to an S-Oil Corp. official.

Heating demand in winter and the spring maintenance season should support margins in the first quarter, while summer mobility would further lift margins, the S-Oil official said, indicating that the refiner would raise crude throughput to capture possible uptick in cracking margins.

South Korean refiners processed 90.42 million barrels, or 2.92 million b/d, in December last year, up 3.6% from a year earlier, which marks the third consecutive month of year-on-year increase, according to state-run Korea National Oil Corp., or KNOC.

The country's crude processing has gradually and steadily recovered from 72.42 million in June last year, which marked the smallest monthly throughput since September 2013.

Reflecting the latest uptrend in crude throughput, South Korea's crude stockpiles fell 8.9% on the year to 37.89 million barrels as of end-December.

Top suppliers

Crude imports from its top supplier Saudi Arabia, excluding shipments from the Saudi-Kuwaiti Neutral Zone, rose 6.6% on the year to 29.67 million barrels in January, customs data showed.

With several weeks left on scheduled OPEC and its alliance members' voluntary production cuts of 2.2 million b/d, the Joint Ministerial Monitoring Committee, co-chaired by Saudi Arabia and Russia, has yet to confirm whether the group will extend the supply reduction stance beyond April.

Even if OPEC+ decides to extend the production cuts, there will be plentiful Middle Eastern sour crude to meet Asian demand in 2024, S&P Global Commodity Insights reported previously, citing refinery feedstock management sources and traders across Asia.

"Saudi Aramco for one, always respects Asian customers' term contractual supply regardless of the OPEC+ cuts... India is buying less Middle Eastern crude in favor of Russian crude so that also leaves ample Persian Gulf barrels for other Asian buyers," said a feedstock manager at a major South Korean refiner.

South Korea also continued to actively purchase US crude, picking up 13.49 million barrels, or more than 6 VLCCs, from the North American supplier in January, customs data showed.

Persian Gulf-Asia logistical costs have been trending higher as geopolitical jitters lift shipping and tanker insurance costs, but USGC-Asia delivery costs are relatively unaffected, traders and feedstock managers at two South Korean refiners said.

Platts assessed outright price spread between WTI MEH (Magellan East Houston), on a CFR Asia basis, and the Middle Eastern benchmark Dubai crude, on an Asia delivered basis, at an average $1.06/b to date in Q1.

Considering light sweet US crude's superior quality, higher middle distillate yield and longer delivery voyage, the premium of around $1/b over high sulfur Middle Eastern crude appears very competitive, according to traders based in Seoul and Singapore.

KNOC is expected to release detailed oil trade data for January, including shipments from other major crude suppliers and import costs after Feb. 26.