S Korea's thirst for US crude to keep growing in 2020
[SEOUL] South Korea is on track to overtake Canada as the top buyer of US crude oil in 2020 as a mix of steep price discounts to alternative supplies, attractive refining economics and rebates on shipping charges prove too good to resist for big refiners.
South Korean purchases more than doubled in the first 11 months of 2019 from a year earlier to 142.3 million barrels, Energy Information Agency (EIA) data showed. That was by far the fastest growth rate among top destinations for US crude, and placed South Korea less than 10 million barrels behind top market Canada.
With the US set to become a net exporter of crude for the first time in 2020, Asia is expected to be a focus for more shipments, especially as European refiners have limited capacity for more shale.
Historically attractive pricing has been a key driver behind US export momentum.
South Korea, the world's fifth-biggest oil importer, bought more than 375,000 barrels per day (bpd) of US oil in 2019, taking its share of Korean imports to nearly 13 per cent. Buyers paid on average US$1.70 a barrel less than for crude from top supplier, Saudi Arabia, according to Reuters calculations based on state-run Korea National Oil Corp (KNOC) data.
This compares with a 97 US cents a barrel premium in 2018.
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"It is economically more attractive, and trade companies, midstream (firms) and producers have been aggressive seeking out buyers for American crude in Asia," said Stephen Wolfe, a Houston-based oil analyst at Energy Aspects.
"Light sweet (crude) is attractive in Korea as a substitute for Iranian South Pars, especially in petrochemically-integrated plants, and especially after the implementation of IMO 2020 (ship fuel rules)."
QUALITY FUEL
US crude oil is normally more expensive for Asian buyers than Middle East grades due to longer journey times and the fact that it yields more quality fuels at a lower refining cost.
Light sweet crude contains more naphtha, used in petrochemicals, and also has a lower sulphur content, making it suitable for very low sulphur fuel oil, which has been mandated for shipping since the start of 2020.
"The US WTI crude discount against Dubai crude was steep last year," said Cho Sang-bum, an official at the Korea Petroleum Association that represents refiners.
"As Middle East crude OSPs (official selling prices) are high because of OPEC supply cuts, we expect US crude to keep coming."
South Korean importers have also benefited from government rebates on freight charges, worth about US$2.11 a barrel, for diversifying supplies beyond the Middle East. And US oil imports attract a zero tariff under a free trade agreement with Washington, Cho said. Middle East crudes carry a 3 per cent tariff.
MORE TO COME
"We expect (US crude) imports to expand again this year," said Suh Suk-won, chief executive of SK Trading International, a unit of SK Innovation , which owns top refiner SK Energy, pointing to falling freight rates and increased marine fuel production.
In the first quarter, US crude shipments to South Korea are estimated to be 38.57 million barrels, up nearly 20 per cent from a year earlier, Refinitiv data showed.
West Texas Intermediate (WTI), WTI Midland and Eagle Ford crudes have been among the most popular US grades in South Korea, along with medium sour Mars crude, KNOC data showed.
"These barrels are going to continue to move and it's going to be OPEC's problem. They hate it because shale's breakeven price is below the general breakeven price for Opec," said a US crude exporter, who declined to be named.
One wild card is the level of Chinese imports of US crude following a US trade deal. South Korea could benefit if the coronavirus outbreak means China does not increase its US crude oil imports despite a tariff cut, said Energy Aspects' Wolfe.
"Korea could negotiate better prices as more American production makes its way into Asia."
REUTERS
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