South Korea's confidence in crude supply security grows amid ample Saudi, UAE shipments

South Korea may shrug off OPEC crude production cuts and geopolitical jitters in the Middle East, as refiners and government officials expressed strong confidence in their trade and business relationships with top Persian Gulf producers, with more sour crude shipments arriving from Saudi Arabia, the UAE and Qatar so far this year.

The world's fourth biggest crude importer received 30.5 million barrels of crude from Saudi Arabia, 12.2 million barrels from the UAE and 6 million barrels from Qatar in September, up 2.3%, 45.1% and 94.3% year on year, respectively, latest data from state-run Korea National Oil Corp. showed.

OPEC and its alliance has been maintaining a firm stance to control and limit the group's crude production levels, but major Middle Eastern producers are respecting East Asian customers' demand and requirements, with Saudi Aramco and ADNOC consistently fulfilling monthly term supply contracts for the buyers, according to traders and feedstock managers at major South Korean, as well as Thai, Japanese, Taiwanese and Chinese refiners.

"The global oil market and media have been overreacting to OPEC+ cuts and the Israel war... the fact is that here in the Far East, refiners have little to no supply concerns because big Middle Eastern producers highly value and respect their important Asian customers," said a feedstock and logistics manager at a major South Korean refiner who declined to be identified due to the sensitive nature of international corporate business relationships.

Mostly recently, Saudi Aramco fully met Asian refiners' nominations for November-loading crude oil, with most buyers having nominated and received full contractual volumes with no cuts made, S&P Global Commodity Insights reported previously citing sour crude traders with knowledge of the matter.

Abu Dhabi National Oil Co, or ADNOC, has also allocated full term supplies to most Asian buyers in Northeast and South Asia for December-loading crude, according to market participants surveyed by S&P Global.

"We have never encountered any serious Middle Eastern sour crude supply issue and there never was any mention of term supply reductions despite the [OPEC+] production cuts going on," said a feedstock manager at another major South Korean refiner that regularly buys Abu Dhabi Murban and Upper Zakum crude as well as 300,000 b/d of term Saudi crude.

In the first nine months, South Korea's crude imports from top supplier Saudi Arabia rose 1% to 265.5 million barrels, while January-September shipments from the UAE rose 24% year on year to 78.2 million barrels and Qatari crude arrivals during the first three quarters jumped 51% from a year earlier to 57.7 million barrels, KNOC data showed.

In total, South Korea imported 85.115 million barrels, or 2.84 million b/d, of crude in September, up 0.6% from a year earlier.

Crude trade diplomacy

While private sector crude importers maintain close and strong business relationship with big Middle Eastern suppliers, with major local refiners SK Innovation, GS Caltex, S-Oil and Hyundai Oilbank consistently and successfully securing ample Persian Gulf sour crude every monthly trading cycle, plenty of state-level efforts have also been put in place to enhance South Korea's uninterrupted oil inflows.

Earlier in the month, KNOC said it will store 5.3 million barrels of Saudi Arabian crude oil in a joint inventory management deal with Saudi Aramco, which would be used as strategic reserves for Asia's fourth largest economy. The deal was signed on the sidelines of summit talks between South Korean President Yoon Suk-yeol and Saudi Crown Prince Mohammed bin Salman during Yoon's state visit to Saudi Arabia Oct. 21.

Under the agreement, 5.3 million barrels of Saudi crude, mostly Arab Light grade, will be stored at KNOC's base in Ulsan on the country's southeast coast.

Meanwhile, the Ministry of Trade, Industry and Energy, or MOTIE, held talks with the six-member Gulf Cooperation Council on their free trade agreement which could help the world's fourth biggest crude importer increase Middle Eastern sour crude purchases in a cost effective way.

South Korea and the GCC first agreed on launching the FTA negotiations in March, 2007, and the eighth official negotiating round took place in Seoul over Oct. 23-27.

The Korean delegation aims to achieve meaningful progress, a MOTIE official said.

FTA is expected to provide a framework for strengthening trade and cooperative relations with the GCC, thereby bolstering energy security and expanding and developing the supply chain collaboration with the six GCC member countries, MOTIE said in a statement.

South Korea currently levies a 3% tariff on imported crude oil, which is abolished or cut for volume from suppliers that have free trade agreements with the nation.

Details on tariffs and other trade barriers will be negotiated with the GCC progressively, the MOTIE official said.

The six GCC members include South Korea's traditional crude suppliers, such as Saudi Arabia, Kuwait, the UAE, Qatar, Oman and Bahrain.

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

*Includes other suppliers

Source: Korea National Oil Corp.