ANALYSIS: South Korea could avoid some Mexican and Russian crudes if Iran returns to market
Mexico and Russia have more than doubled their South Korean market share since 2017
Refiners could cut purchases of Mayan, Ural, Middle Arab and heavy Arab crude
Iranian acid grades are suitable for Korean S refinery systems, configuration
South Korea is likely to change its crude oil sourcing and trading strategy when Iranian barrels return to the international market, with Mexican and Russian suppliers set to lose much of their market share in the fifth plus. major importer of rough in the world.
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Major South Korean refiners are keen and ready to buy Iranian crude oil if sanctions on Tehran are lifted, as the medium and heavy acid qualities of the Persian Gulf producer are relatively economical. South Korea’s global refinery systems are also better designed to process Iranian raw materials, Seoul-based refinery officials told S&P Global Platts.
South Korea has completely halted imports of Iranian crude and condensate since May 2019, and refiners including SK Energy and Hyundai Oilbank have since increased their purchases of Maya crude from Mexico and Russian blend from the Urals as Raw materials alternatives to heavy Iranian crudes and Forozan, raw materials management sources at refiners with direct knowledge of the matter told Platts.
As a result, Mexico and Russia are inclined to forgo the big South Korean market share gains that producers enjoyed during Iran’s absence, a Seoul-based senior market analyst told Korea Petroleum. Association.
Imports of crude from Mexico and Russia in the first four months of this year accounted for 6.4% and 6.7%, respectively, of the overall basket of raw material imports from South Korea’s refineries, according to Platts calculations based on data from Korea National Oil Corp., or KNOC.
By comparison, South Korea’s market share for Mexico and Russia was only 2.8% and 3.5%, respectively, in 2017, when Iranian cargoes were freely traded in the international market. South Korea imported more than 13% of its crude oil requirement from Iran that year.
“Maya and the Urals would probably be the main scapegoat once the Iranian crude becomes available. It’s like football… when a star player returns after recovering from injury, a replacement player has to step down.” , said a raw materials manager of a large South Korean. refiner, who declined to be identified due to the sensitive nature of the commercial relationship between producer and end user.
The country’s refineries have all been primarily designed and configured to process sour crude from the Middle East, so it is much more technically efficient to feed the systems with Iranian oil rather than crude from the Americas and the United States. Europe, industry officials and refinery sources said.
Maya is a heavy sour crude that typically has a specific gravity of 22 API and a sulfur content of 3.3%, while Ural is a medium sour crude with a gravity of around 31.5 API and a sulfur content. by 1.44%.
Major Korean refiners are expected to reduce imports of several acidic grades from the Middle East, including medium and heavy Arabic grades from Saudi Arabia, Upper Zakum from Abu Dhabi and deodorized field condensate from Qatar, in order to make room for the supply of Iranian crude and condensates.
“Iranian Light, Persian Heavy, Forozan, South Pars … these will obviously be in direct competition with all medium and heavy acid grades, as well as ultralight crudes in the Persian Gulf market,” the source said. of the South Korean refinery.
Many Asian refiners have found Iranian crude oil, of ultralight to heavy grades, relatively attractive and competitive in the Persian Gulf market, with South Korea paying less for shipments from Iran than other key producers of the region before the sanctions.
South Korean refiners paid an average net price of $ 52.90 / bbl for imported Iranian crude in 2017, lower than the $ 53.83 / bp paid for shipments from Saudi Arabia, $ 54.80 / bbl of United Arab Emirates and $ 55.76 / bbl from Qatar that year, according to KNOC data. shown. KNOC’s import cost figures include freight, insurance, taxes and other administrative and port charges.
The strong upward trend in the Brent-Dubai price differential could also prompt refiners to reduce their purchases of Urals crude, as the Russian medium-sour grade is priced against the European benchmark, have declared commercial sources of the refinery.
The Brent / Dubai Exchange of Futures for Swaps, or EFS, the spread – a key indicator of Brent’s premium over the Middle East benchmark – averaged $ 3.17 / b to date in the second quarter, on track to establish the highest quarterly average since $ 3.81. / b in Q2 2018, data from Platts showed.
Iran is still in extensive negotiations with American and European diplomats with the aim of reviving the nuclear deal and lifting the sanctions.
S&P Global Platts Analytics still expects the parties to reach an agreement in the coming months, with the Biden administration removing sanctions on the oil, petrochemical, marine and other sectors by September. This sanctions relief would allow the country to increase crude and condensate exports to 1.5 million bpd by December, from 600,000 bpd in May, Platts Analytics said.