South Korea, the world’s fifth largest crude oil importer, is set to purchase growing volumes of U.S. oil this year to the point of overtaking Canada as the top destination for American crude in 2020, Reuters estimates, as South Korea takes advantage of cheaper U.S. oil compared to Middle Eastern supplies.
Last year, South Korea bought 13 percent of its crude oil supply from the
United States, importing on average 375,000 barrels per day (bpd) from America, according to Reuters estimates.
According to the latest EIA data for November 2019, U.S. crude exports to South Korea averaged 439,000 bpd, while exports to Canada were 482,000 bpd. In June, July, and September 2019, South Korea was the top destination of U.S. crude on a monthly basis, ahead of Canada.
Based on Reuters calculations of data from Korea National Oil Corporation (KNOC), South Korean refiners paid on average $1.70 a barrel less for U.S. oil compared to the oil they imported from their top supplier Saudi Arabia. To compare, refiners in South Korea were paying $0.97 a barrel more for U.S. oil compared to Saudi oil in 2018.
In 2019, cheaper WTI Crude, pricier grades from the Middle East because of the OPEC+ cuts, and the higher demand for light sweet U.S. crude with the IMO shipping fuel regulations, played in favor of increased American oil sales in South Korea.
“The U.S. WTI crude discount against Dubai crude was steep last year,” Cho Sang-bum, an official at the Korea Petroleum Association representing local refiners, told Reuters.
This year, the trend of rising U.S. oil exports to South Korea is expected to continue, as more expensive Dubai benchmarks make Middle Eastern oil more expensive compared to American barrels. Refiners in South Korea also benefit from freight rebates from the government aimed at diversifying supplies away from the Middle East, and from a free trade agreement between the U.S. and South Korea, Cho told Reuters.
South Korea’s diversification from oil supplies from the Middle East intensified as the U.S. slapped sanctions on Iranian oil exports and South Korea stopped importing oil from Iran, IHS Markit said in an analysis last month.
South Korea’s plan to diversify its oil supplies and to reduce its reliance on the oil flows in the Strait of Hormuz has started to take shape faster than previously expected, Fotios Katsoulas, Liquid Buohlk Principal Analyst, Maritime & Trade, IHS Markit, said in the analysis.
By Tsvetana Paraskova for Oilprice.com
