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South Korea's appetite for sweet crude oil grades has been
strengthening since late 2018, with the Far Eastern importer
favouring imports from the US and North Sea over Middle Eastern
sour crude oil barrels. The trade war between Washington and
Beijing allowed the country to step in and absorb much more since
the fourth quarter last year. Meanwhile, the trend is expected to
get further supported by the ongoing geopolitical tensions in the
Middle Eastern Gulf and OPEC+'s extended agreement to keep output
limited. As Saudi Arabia will continue focusing on improving its
market share in Chinese imports, South Korea will continue to rely
on US crude oil and light sweet North Sea crude, at least over the
next nine months.
With concerns around trade flows through the Straits of Hormuz
and the risk of future disruptions rising, securing more sources
from the US and Europe seems to make sense for South Korean
refiners. Imports from the Middle East have been dropping since
April, when the country received the last Iranian barrels. Imports
from the Middle East have declined 8.4% in H1 2019, year-on-year.
Flows from the Americas has increased around 28% since H2 2018,
with the year-on-year growth reaching almost 95%.
The US-South Korea route is expected to further flourish, at the
expense of Middle Eastern sour crude oil barrels. The price
differentials established support the trend, with local companies
having commented that they might further cut imports of crude from
the Middle East. Elsewhere, South Korean refiners returned their
focus on barrels of Forties crude from the UK during Q2 2019, after
a long pause since December 2018. Market conditions have been
improved since Seoul decided to extend freight incentives which is
expected to support flows of the North Sea crude grades by the end
of the year. These freight incentives granted to refiners buying
from regions other than the Middle East will last till the end of
2021. The measure proved strong enough for the country to reduce
its reliance on Middle Eastern crude. Apart from the US, shipments
from Africa have increased as well, with year-on-year growth having
reached 7.5% so far in H1 2019.
Posted 09 July 2019 by Fotios Katsoulas, Liquid Bulk Principal Analyst, Maritime & Trade, IHS Markit
