Mexico, Russia more than double their S Korean market share since 2017
Refiners may cut Maya, Urals, Arab Medium, Arab Heavy crude purchases
Iranian sour grades suit S Korean refinery systems, configuration
South Korea will likely alter its crude oil procurement and trading strategy when Iranian barrels return to the international market, with Mexican and Russian suppliers poised to lose a big portion of their market share in the world’s fifth largest crude importer.
Major South Korean refiners are keen and ready to buy Iranian crude oil if the sanctions on Tehran are lifted, as medium and heavy sour grades from the Persian Gulf producer are relatively economical. S Korea’s overall refinery systems also are better designed to process Iranian feedstocks, refinery officials based in Seoul told S&P Global Platts.
South Korea completely halted imports of Iranian crude and condensate since May 2019, and refiners including SK Energy and Hyundai Oilbank were since then raising purchases of Mexico’s Maya crude and Russia’s Urals Blend as alternative feedstocks to Iranian Heavy and Forozan crudes, feedstock management sources at the refiners with direct knowledge of the matter told Platts.
Accordingly, Mexico and Russia are prone to surrendering the big gains in the South Korean market share the producers had enjoyed during Iran’s absence, a senior Seoul-based market analyst at Korea Petroleum Association said.
Crude imports from Mexico and Russia in the first four months of this year made up 6.4% and 6.7% of South Korea’s overall refinery feedstock import basket, respectively, according to Platts calculation based on data from state-run Korea National Oil Corp., or KNOC.
In comparison, the South Korean market share for Mexico and Russia was only 2.8% and 3.5%, respectively, in 2017, when Iranian cargoes were freely traded on the international market. S Korea imported more than 13% of its crude oil requirements from Iran for that year.
“Maya and Urals would probably be the primary scapegoat once Iranian crude becomes available. It’s like football … when a star player returns after recovering from an injury, a substitute player must come off,” said a feedstock manager at a major South Korean refiner, who declined to be identified due to the sensitive nature of producer-end user business relationship.
The country’s refineries were all primarily designed and configured to process Middle Eastern sour crude, hence it is a lot more effective in technical terms to feed the systems with Iranian oil rather than crude from the Americas and Europe, industry officials and the refinery sources said.
Maya is a heavy sour crude that typically has a gravity of 22 API and 3.3% sulfur content, while Urals is a medium sour grade with a gravity of around 31.5 API and sulfur content of 1.44%.
Key Korean refiners are expected to cut imports of several Middle Eastern sour grades, including Saudi Arabia’s Arab Medium and Arab Heavy, Abu Dhabi’s Upper Zakum, and Qatar’s Deodorized Field Condensate, to make room for Iranian crude and condensate procurement.
“Iranian Light, Iranian Heavy, Forozan, South Pars … these will obviously directly compete with all medium and heavy sour grades, as well as ultra-light crudes in the Persian Gulf market,” the South Korean refinery source said.
Many Asian refiners found Iranian crude oil, from ultra-light to heavy grades, relatively attractive and competitive within the Persian Gulf market, with South Korea paying less for shipments from Iran than other key producers in the region prior to the sanctions.
S Korean refiners paid an average outright price of $52.90/b for Iranian crude imported in 2017, lower than $53.83/b paid for shipments from Saudi Arabia, $54.80/b from the UAE, and $55.76/b from Qatar that year, the KNOC data showed. KNOC’s import cost figures include freight, insurance, tax and other administrative and port charges.
The sharp uptrend in the Brent-Dubai price spread could also prompt refiners to cut Urals crude purchases as the Russian medium sour grade is priced against the European benchmark, refinery trading sources said.
The Brent/Dubai Exchange of Futures for Swaps, or EFS, spread — a key indicator of Brent’s premium to the Middle Eastern benchmark — averaged $3.17/b to date in the second quarter, on course to set the highest quarterly average since $3.81/b in Q2 2018, Platts data showed.
Iran remains in deep negotiations with the US and European diplomats in a bid to revive the nuclear deal and cast off sanctions.
S&P Global Platts Analytics still expects the sides to reach a deal in the coming months, with the Biden administration removing sanctions on Iran’s oil, petrochemicals, shipping and other sectors by September. This sanctions relief would allow the country to boost crude and condensate exports to 1.5 million b/d by December from 600,000 b/d in May, Platts Analytics said.
Gawoon Philip Vahn