South Korea ramps up crude imports from Middle East in March amid Russian cutoff

South Korea increased its Middle East crude imports in March, with shipments from Qatar more than doubling from a year earlier and imports from Saudi Arabia rising 8.1%, as refiners continued to shun Russian oil, data from state-run Korea National Oil Corp showed April 27.

The world's fourth biggest crude importer received 6.19 million barrels from Qatar in March, close to a threefold jump from 2.57 million barrels a year earlier, KNOC data showed. Most of the Qatari cargoes consisted of medium sour Al Shaheen crude and deodorized field condensate, trading sources at major South Korean refiners with direct knowledge of the matter said.

South Korea received 32 million barrels from top-supplier Saudi Arabia in March, compared with 29.6 million barrels a year earlier, while shipments from the UAE, mostly light sour Murban and medium sour Upper Zakum crude, jumped 80.9% over the same period to 8.02 million barrels, according to trading sources and KNOC data. Imports from Iraq rose 22.3% from a year earlier to 7.77 million barrels.

South Korea's refining industry has completely moved away from Russian crude, but Asia's third-biggest crude buyer and the region's top oil products export supplier is capable of securing a wide variety and ample volumes of Middle Eastern crude oil thanks to local refiners' extensive business networks in the Persian Gulf and their trading expertise in Singapore and Dubai, according to a senior market analyst at Korea Petroleum Association.

The country did not receive any cargoes from Russia in March for the fourth consecutive month, KNOC data showed.

South Korea's refining industry is on track to register no Russian crude imports for the entire year. Regardless of the $60/b price cap set by the G7, South Korean refiners prefer to avoid trade, logistical, legal and financial complications and maintain a good corporate reputation, S&P Global Commodity Insights reported earlier, citing officials and feedstock managers at four major refiners including SK Innovation.

Supply security post OPEC+ cut

Refiners across Asia have indicated they will actively negotiate with Middle Eastern producers over their term supplies for the upcoming months and quarters after OPEC and its allies surprised the markets April 2 by announcing plans to make more than 1.6 million b/d of voluntary production cuts from May until December 2023.

Feedstock management sources at major South Korean refiners said they were broadly confident their term Middle Eastern crude contractual volumes for the second half of the year would not be reduced much, as actual OPEC+ production has been significantly below its targets due to sanctions on Russia and technical issues and underinvestment by many members.

Saudi Aramco has allocated full May-loading crude oil nominations to several term buyers in Japan, South Korea, China and Southeast Asia, industry sources told S&P Global April 10.

Big Asian buyers like South Korea are extremely important for major Middle Eastern producers, especially in times when mega importers like India and China are heavily favoring cheap Russian barrels, a feedstock and logistics management source at a major South Korean refiner said.

Apart from the private sector, plenty of state-level efforts have been put in to ensure Middle Eastern sour crude supply security for South Korea, which relies 100% on imports for its crude oil requirements.

Abu Dhabi National Oil Co. signed an agreement with KNOC to use tanks in South Korea to store 4 million barrels of crude on the sidelines of summit talks between South Korean President Yoon Suk-yeol and UAE President Mohamed bin Zayed Al Nahyan in January.

In February, senior officials at key South Korean government ministries including the Ministry of Trade, Industry and Energy and the Ministry of Economy and Finance visited Riyadh to resume free trade agreement negotiations with representatives from GCC member nations, marking the seventh round of official FTA discussions between the two parties.

In addition, South Korea's third biggest refiner S-Oil held a ground-breaking launch ceremony March 9 for the country's biggest ever petrochemical project, which was funded by Aramco Overseas, a subsidiary of Saudi Aramco.

In total, South Korea imported 91.46 million barrels, or 2.95 million b/d, of crude in March, up 6.9% from 85.558 million barrels a year earlier, the KNOC data showed. Over January-March, it received 260.256 million barrels of crude, up 0.2% from the same quarter a year earlier.

South Korea's top 10 crude suppliers

(Unit: '000 barrels)

*Includes other suppliers

Source: Korea National Oil Corp.