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South Korean refiners to gain Asian market share amid lower Chinese supply
2022 middle distillate exports expected to reach 400 million barrels
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South Korean refiners are poised to register healthy oil product sales across Asia and Oceania in the first half 2022 as they look to take over a large chunk of China’s market share in the region after Beijing slashed Chinese refiners’ middle distillate export quotas for the early part of the new year.
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Major South Korean fuel producers including SK Innovation, S-Oil and GS Caltex indicated the refiners are increasingly optimistic that their middle distillate sales would increase significantly across Asian markets in the absence of Chinese competition.
“The sharp decline in China’s fuel export quotas would work favorably for the South Korean refining industry as it boosts the 2022 middle distillate trading fundamentals and exports outlook,” a senior official at SK Innovation told S&P Global Platts.
China’s Ministry of Commerce has allocated 13 million mt of oil product export quota in the first round to seven oil companies for 2022, down 55.9% from the same round for 2021, Platts has reported.
In addition, Chinese refineries are under pressure to cut operating rates and oil products output as Beijing aims to ensure that emissions remain under control ahead of the Winter Olympics that kick off Feb. 4. The country’s private sector refineries have already started to cut crude throughput in response to a directive to cap utilization below 70%, Platts has reported.
China’s fuel exports had already begun declining in late 2021, with oil product exports falling 45.3% year on year to 3.23 million mt in December, a 17-month low, General Administration of Customs data showed.
Platts Analytics expects China’s exports of gasoline, gasoil and jet fuel to fall to an average of 650,000 b/d in 2022 from 875,000 b/d in 2021 and 1.2 million b/d in pre-pandemic 2019.
Looking to take full advantage of faltering Chinese oil products supply in the regional market, South Korean refiners are raising run rates and crude throughput to take a dominant Asian middle distillate export market position, according to officials and marketers at S-Oil and GS Caltex.
Rosy export forecast
South Korea is already an established major oil products supplier with a healthy market share in the regional export market and it could expand the Asia and Oceania market share by more than 20% in 2022, according to analysts at Korea Petroleum Association and state-run Korea National Oil Corp.
South Korea could potentially export around 400 million barrels of gasoline, gasoil and jet fuel combined in 2022, up from 343 million barrels in 2021 and 357 million barrels in pre-pandemic 2019, according to middle distillate marketing sources at the four major South Korean refiners surveyed by Platts in the week to Jan. 21.
A revival in the regional aviation and tourism industry at some stage later in 2022 could also potentially add another 20 million-30 million barrels of jet fuel exports for the year, the fuel marketers said.
On top of the expectations of higher export volume, sales margins are also expected to improve in 2022, helped by lower product exports from China and ongoing Asia-wide consumer fuel demand recovery. Platts Analytics projects the region’s oil demand this year to rise by 1.7 million b/d, highlighting that most Asian countries are moving toward reopening despite seeing a rise in omicron cases.
The FOB Singapore gasoil crack spread against second-month Dubai swap has averaged $14.90/b to date in January, up from $9.60/b in 2021 and $6.80/b in 2020.
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