South Korea is on course to set a record for annual US crude imports in 2024, having purchased nearly 85 million barrels in the first half of the year, with major local refiners favoring light sweet North American barrels for their logistical and refining efficiencies, industry sources said over July 25-29.
The world’s fourth-largest crude buyer imported 13.94 million barrels of US crude in June, up 23.6% on the year, while shipments over January-June rose 23.1% on the year, the latest data from state-run Korea National Oil Corp.
Middle Eastern sour crude will remain the primary feedstock for South Korean refineries. Still, light sweet US crude grades are expected to comprise nearly 20% of the refining industry’s crude slate due to fewer logistical hassles and significantly lower tanker insurance costs compared with Persian Gulf-Asia fixtures, according to feedstock and logistics management sources at major South Korean refiners.
Crude deliveries from the Persian Gulf market are always susceptible to geopolitical risks and often incur additional costs, but there is a big pool of VLCCs willing to make regular [US Gulf Coast]-Asia trips, so US crude logistics are very straightforward and low in [geopolitical-related] risks,” a feedstock manager said.
Furthermore, the South Korea-US free trade agreement enables local refiners to purchase light sweet US crude cargoes at lower costs compared with other Asian buyers. The FTA allows cost cuts by up to $2/b for WTI Midland crude purchases, a trade source at a South Korean refiner’s feedstock trading team in Singapore previously said.
Additionally, refining efficiency and cracking margin for light sweet US crude is one of the best, especially in times of tepid cracks, as WTI Midland has a low boiling point and excellent middle distillate yield, a linear programming model strategist and a product margin analyst at two major South Korean refiners said.
FTA With UAE
Among major Middle Eastern crude suppliers, shipments of light and medium sour Abu Dhabi crude grades are expected to increase throughout the second half of 2024 as major South Korean refiners are poised to benefit from lower tariffs and other trade-related taxes after Seoul inked an FTA with the UAE.
The fourth-largest economy in Asia signed a bilateral FTA with the UAE on May 29, removing the 3% tariff on crude imports from the UAE over the next 10 years.
Under the deal, South Korea and the UAE will also cut tariffs on naphtha trades by 50% over the next five years. This means the 0.5% tariff on naphtha inflows from the UAE will be reduced to 0.25%, and the 5% tariff on naphtha imports from South Korea will be lowered to 2.5%.
In the first six months, crude imports from Saudi Arabia fell 0.5% on the year to 168.7 million barrels, shipments from Iraq dropped 10.8% on the year to 49.2 million barrels, and Qatari crude and condensate intake declined 20.7% on the year to 30.5 million barrels. However, crude inflows from the UAE in the first half of the year rose 47.5% on the year to 74.7 million barrels.
US Election In Focus
The South Korean refining industry will closely monitor the US election, as a Donald Trump victory could limit China’s US crude purchases while potentially boosting South Korea’s intake of WTI Midland crude, market participants said.
If Trump becomes US president again, there could be another round of trade barriers and higher tariffs on US energy exports to China. According to feedstock managers at two refiners and a trade flow analyst at the state-run Korea Trade Investment Promotion Agency, South Korean refiners could absorb most of the US barrels that Chinese buyers refuse.
China has purchased around 176,669 b/d of US crude so far this year.
“If another trade war unfolds after the US election and China finds US crude expensive, South Korean refiners could take advantage of lower tariffs [due to the South Korea-US FTA] to grab more US crude every trading cycle,” a crude and condensate trader based in Singapore with close knowledge of US-Asia spot crude trade deals said.
Source: S&P Global
