South Korea's crude imports tumble to 30-month low in Aug amid lackluster economic activity

South Korea's crude oil imports tumbled to the lowest level in two and a half years in August as consumer spending in Asia's fourth biggest economy dwindled amid surging household debt and rising pump prices, while industrial fuel demand remained under pressure as manufacturing and construction sectors struggle, market participants said over Sept. 15-19 based on the latest customs data.

The world's fourth-biggest crude importer received 73.59 million barrels, or 2.37 million b/d, of crude oil last month, down 24.1% from 96.92 million barrels imported a year earlier, marking the lowest monthly refinery feedstock shipment since 71.82 million barrels received in March 2021, latest data from Korea Customs Service showed. Crude imports in August were also down 10% from July.

South Korea's oil demand is expected to sharply undershoot what the refining and financial sectors had initially forecast for 2023 as the overall economic activity is in a bad shape, according to middle distillate marketers at two major refiners and fixed-income market analysts at Daishin Securities and Meritz Securities based in Seoul. High household debt and inflation concerns restrained private spending as well as new property construction projects, while high-tech manufacturing plant operation rates continued to dwindle amid tepid goods and services exports to China, the analysts added.

Earlier in the year, financial market analysts and refining margin strategists had broadly expected South Korea's oil demand to improve to around 2.61-2.65 million b/d from 2.6 million b/d in 2022 and 2.57 million b/d in 2021. However, oil consumption averaged just 2.51 million b/d in the first seven months, while S&P Global forecast South Korea's crude runs in 2023 to slip to 2.974 million b/d from 3.011 million b/d in 2022.

"Generally, there were too much optimism that China's economic recovery would support [South Korea's] manufacturing and trade activity in the beginning of the year and we never knew record-high mortgage debt level would batter consumer and business sentiment this badly," said a naphtha and diesel distribution manager at a major South Korean refiner based in Ulsan.

South Korea's retail sales dropped 3.2% on a seasonally adjusted basis in July from a month earlier, the first monthly fall in three after gains of 0.9% in June and 0.6% in May, according to Statistics Korea. It was the biggest drop since July 2020.

The S&P Global South Korea Manufacturing PMI eased to 48.9 in August from July's 49.4 and remained below the no-change mark of 50.0, signalling a deterioration in overall business conditions and extending the current downturn to 14 months.

Rising pump prices

South Korea's crude oil imports and throughput could be capped for the rest of the year as consumer sentiment faces its biggest test with retail automotive fuel prices extending the upward momentum, industry sources said.

The government had extended its fuel tax cut scheme until October but taking into account the sharp uptrend in retail and benchmark oil prices, fourth quarter domestic wholesale and distribution volumes, as well as the overall refining margin outlook would need to be revised, middle distillate marketers at major South Korean refiners said.

The retail pump price of gasoline averaged Won 1,750/liter ($1.12/liter) in the first week of September, on course to set the highest monthly average since Won 1,984/liter ($1.50/liter)in June 2022, according to state-run Korea National Oil Corp., or KNOC.

Platts, part of S&P Global, assessed benchmark FOB Singapore 92 RON gasoline outright price at $111.75/b Sept.15, the highest level since $111.94/b on Aug. 24, 2022.

Major crude suppliers

South Korea's crude imports from the US in August, mostly light sweet grades, dropped 28.5% from a year earlier to 7.72 million barrels, marking the first year-on-year decline in three months, the customs data showed.

Shipments from top crude supplier Saudi Arabia, also fell 23.3% year on year to 28.49 million barrels in August.

Despite OPEC and its alliance members' firm stance to control and limit the group's crude production levels, refiners across Northeast Asia have little trouble securing adequate Middle Eastern sour crude supplies, especially from Saudi Arabia, as the OPEC Kingpin respects and prioritize its key customers in the Far East, feedstock management sources at two major South Korean refiners said.

"[Middle Eastern suppliers] are broadly keen to provide full monthly term contractual volumes to top Asian customers... though time to time we would nominate and ask to lift only the minimum contractual amount in case of any lengthy [refinery] maintenance works or shift in refining economics," said a feedstock and logistics manager at a major South Korean refiner.

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