SOUTH KOREA DATA: Aug US crude imports double on year to 16 mil barrels

South Korea extended its US crude buying spree in August, with imports doubling on the year to almost 16 million barrels amid logistical and refining advantages, while Persian Gulf inflows remained solid despite geopolitical tensions, industry sources said.

South Korea's major refiners and petrochemical makers, including SK Innovation, Hanwha TotalEnergies and Hyundai Oilbank, collectively took 15.88 million barrels of US crude -- mostly light sweet WTI Midland -- in August, up 91.9% from a year earlier, state-run Korea National Oil Corp. data showed Sept. 30.

In the first eight months of the year, Asia's third-largest crude importer raised its US crude intake by 34.9% year on year to 120.889 million barrels, the highest ever shipments from the North American supplier over the January-August timeframe and on course for record-high annual imports, according to S&P Global Commodity Insights analysis and calculation of the KNOC data.

Logistical simplicity and cost advantage make US crude highly attractive this year as USGC-North Asia VLCC fixtures face fewer geopolitical risks than tankers for Persian Gulf-Asia routes. Additionally, shipping insurance fees are much smaller for USGC-Asia deliveries, while tanker availability is abundant for WTI Midland deliveries to East Asia, according to feedstock and logistics management sources at two major South Korean refiners.

"Obviously South Korea leads the US crude imports in Asia thanks largely to lower tariffs and freight incentives... when it comes to trading US crude, South Korean refiners hold a significant advantage over other Asian traders and refiners," said a feedstock and inventory manager at an Ulsan-based South Korean refiner, referring to the US-South Korea free trade agreement and the South Korean government's freight incentives for crude imports from regions outside the Middle East.

The freight rebate scheme was set to expire at the end of 2024, but Seoul recently approved an extension, continuing freight incentives for crude imports from regions outside the Middle East until Dec. 31, 2027.

Initially designed to help reduce reliance on Middle Eastern crude, the arrangement offers a freight rebate of up to Won 16/liter (1.4 cents/liter) for shipments from the Americas, Africa, North Sea and Mediterranean markets, covering the cost difference against Persian Gulf grades.

Platts, part of Commodity Insights, assessed the outright price spread between WTI Midland crude and UAE's light sour Murban crude, both on a CFR North Asia basis, at an average premium of $1.24/b so far this year. In comparison, South Korean refiners paid on average $86.71/b for US crude shipments in the first eight months, only 8 cents/b more than the $86.63/b average for UAE crude over the same period, KNOC data showed.

"Taking into considering WTI Midland's superior quality, better cracking economics and much longer delivery distance, overall import costs [on a dollar-per-barrel basis] are fairly similar to Middle Eastern sour grades, making the US crude very attractive," said a linear programming model analyst at another major South Korean refiner.

Stable Middle Eastern supplies

Regardless of the attractive US crude import economics, Middle Eastern sour crudes remain essential staples for South Korea's refining industry. While supply security from the Persian Gulf is crucial, refiners broadly see the ongoing geopolitical issues in the Middle East causing little to no disruption to trade flows, refinery feedstock management sources and traders said.

South Korean refiners, along with many other Asian crude importers, have faced minimal Middle Eastern sour crude procurement issues.

"East Asian nations are mostly very neutral in terms of where they stand in the ongoing Israel-Iran tensions... neither Tel Aviv nor Tehran would dare take any extreme actions that may cause major sour crude trade flow disruptions to the Far East as such instance could unnecessarily bring Asia's military involvement into the equation," the feedstock manager at the Ulsan-based refiner said.

South Korea's crude imports from top supplier Saudi Arabia slipped 2.7% year on year to 27 million barrels in August, but shipments from the UAE rose 26.9% on the year to 15.88 million barrels, while medium and heavy sour crude imports from Iraq increased 28.9% from a year earlier to 8.89 million barrels, KNOC data showed.

Combined shipments of Middle Eastern crude in the first eight months were up 2.9% year on year at 493.12 million barrels.

In total, the world's fourth-biggest crude buyer, imported 96.294 million barrels, or 3.11 million b/d, of crude in August, up 27.8% from a year earlier and marking the biggest monthly intake since 96.917 million barrels in August 2022.

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

*Includes other suppliers

Source: Korea National Oil Corp.