in Freight News 03/05/2022
South Korea is on course to sharply reduce crude imports from Russia with shipments from the OPEC+ producer tumbling by more than 40% year on year in March, as refiners aim to avoid trade, logistics and financial complications, while light sweet US crude is considered the country’s best option to fill any Russian supply gaps.
South Korea imported 2.98 million barrels of crude oil from Russia in March, down 44% from 5.29 million barrels received a year earlier and marking the lowest monthly shipments in eight months, latest data from state-run Korea National Oil Corp showed.
The monthly shipments also fell 18% from February, while Russian crude imports in the first quarter dropped 4% from the same period a year earlier to 11.86 million barrels, the KNOC data showed.
Most of the March arrival cargoes had been purchased during late January and early February, before the outbreak of the Russia-Ukraine conflict, according to refinery feedstock managers at major South Korean refiners, who declined to be identified due to the sensitive nature of Russian oil trades.
A few spot deals for March delivery ESPO, Sokol and Sakhalin blend crude cargoes were canceled soon after the US imposed financial sanctions, blocking some Russian banks from accessing the SWIFT international payments system, said sources at western trading firms and Northeast Asian refiners that trade Far East Russian crudes regularly.
In an effort to reduce the rise of potentially facing legal, financial, administrative and logistical hurdles in buying Russia’s light and medium sweet oil, multiple Asian refiners and trading companies told S&P Global they initially aimed to secure cargoes from non-Russian equity holders of the Far East Russian upstream projects, including ExxonMobil, India’s ONGC Videsh Ltd, Japan’s Sakhalin Oil and Gas Development Co., or Sodeco.
South Korean refiners indicated that they could still make purchases from Russian entities as Seoul has not officially banned any energy imports from Russia, but the companies see plenty of trade hurdles ahead, while they also aim to maintain good corporate reputations.
“Overall, [South Korean] refiners would aim to slash Russian crude procurement to zero eventually and this is more than possible because South Korea never really depended much on Russian oil in the first place, while there are plenty of alternative light sweet crude supply sources,” according to a crude and oil product trade flow analyst at Korea Petroleum Association based in Seoul.
Life without Russian crude
Major South Korean refiners indicated they would have little problem sourcing alternatives to Russian crude oil, as Russian crudes make up just 4% of South Korea’s refining industry’s overall feedstock imports.
Plenty of WTI Midland and Eagle Ford crude imports from the US would comfortably make up for any gaps left by faltering Far East Russian crude intake, a sweet crude trading manager at a major South Korean refiner told S&P Global.
South Korea imported 11.68 million barrels of US crude in March, up 4% from a year earlier and marking the 12th consecutive month of year-on-year increase, the KNOC data showed. South Korean refiners combined have been receiving at least five VLCCs of US crude every month since June 2020, with the exception of December 2021.
Drastic cuts in Russian oil imports and more US crude purchases would also work in favor of South Korea’s refining economics as North American barrels come at a much lower cost than Russian and Middle Eastern supplies, KNOC officials said.
South Korean refiners paid on average $87.70/b for US crude imported in Q1, lower than $91.30/b for Russian crude, $92.57/b for Saudi grades and $96.06/b for Kuwait barrels, the KNOC data showed.
Apart from WTI Midland and Eagle Ford crudes, refiners could pick up a few odd cargoes of US Alaskan North Slope crude and Kazakhstan’s CPC Blend crude to make up for any shortfall in Russian supplies, the feedstock managers said.
Staple Middle Eastern supply
South Korea’s crude imports from top Middle Eastern producers have increased sharply in March, with refiners eager to take as many Persian Gulf cargoes as possible to capture lucrative Asian refining margins.
Refiners are actively conducting spot crude purchases on top of their Middle Eastern term supply contracts in an effort to maintain high throughput and run rates, with the primary goal of capturing robust regional refining margins and expanding oil product export opportunities.
Global crude supply is tight but oil product supply is even tighter, making an ideal market condition for highly sophisticated South Korean refineries capable of maximizing high-end fuel output and sales, according to middle distillate marketers at major South Korean refiners, including S-Oil, said earlier.
Imports from top crude supplier Saudi Arabia surged 55.3% year on year to 29.6 million barrels in March, marking the seventh consecutive month of year-on-year increase, the KNOC data showed.
Shipments from Kuwait also jumped 44.6% year on year to 12.783 million barrels in March.
in Freight News 03/05/2022