South Korea's Trade Ministry and major local refiners expect tensions surrounding the Strait of Hormuz and Houthi militant activity to hardly impede the nation's Middle Eastern crude imports, but some CPC Blend crude cargoes may witness delays in arrival as they take the longer Cape of Good Hope route, refinery and government sources said Jan. 14-16.
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Register NowThere is no disruption in crude oil shipments from the Middle East so far, the Ministry of Trade, Industry and Energy said in a statement after it held an emergency meeting with major refiners, including SK Innovation and S-Oil on Jan. 14, to check on crude supplies and trade flows from the Persian Gulf market.
South Korean refiners' term and spot purchase sour crude cargoes are loading and sailing without any major troubles, officials and feedstock managers at three major South Korean refiners told S&P Global Commodity Insights Jan. 16.
The government and refiners are closely monitoring the situation in the Persian Gulf and Red Sea waters, trying to make all-out efforts to secure stable supplies, MOTIE said.
On Jan. 11, Iranian military had issued a statement confirming that a tanker carrying Iraqi crude had been seized in the straits of Hormuz by the Iranian navy.
Any disturbances at the Strait of Hormuz would deliver a severe blow to South Korea as the nation relies heavily on Middle Eastern crude. However, South Korea-bound tankers carrying various Persian Gulf crude grades have hardly sensed any danger so far and it is unlikely for Iran to seize or target multiple vessels, especially those headed to the Far East, feedstock trading and inventory managers at two major South Korean refiners, including S-Oil, said.
South Korea's crude imports from its top supplier Saudi Arabia, excluding shipments from the Saudi-Kuwaiti Neutral Zone, rose 6.5% year on year to 32.41 million barrels in December, latest data from Korea Customs Service showed.
In 2023, Asia's third biggest crude importer received 341.84 million barrels from Saudi Arabia, up 0.7% from 2022, despite the OPEC Kingpin's commitment to production cut, the customs data showed.
CPC Blend crude
The government and refiners indicated that shipments of Kazakhstan's light sweet CPC Blend are at risk due to the escalating security threats around the Red Sea.
CPC Blend crude first gets delivered from production facilities to the Russian Black Sea port of Novorossiisk via the Tengiz-Black Sea pipeline before sailing through the Suez Canal to reach South Korean ports.
CPC Blend crude cargoes for South Korea have detoured the Suez Canal to take the longer Cape of Good Hope route, according to refinery sources with direct knowledge of the matter.
Asian refiners' dependency on the Red Sea shipping route for their overall crude imports is minuscule. Almost all of the US, Latin American and West African crude cargoes typically travel to the Far East via the southern tip of South Africa.
However, small volumes of Libya's El Sharara, Mesla Blend and Mellitah condensate, as well as Algeria's Saharan Blend, Kazakhstan's CPC Blend and Azerbaijan's Azeri Light are delivered in Suezmaxes or smaller tankers that pass through the Suez Canal and the Red Sea route before reaching the Far East destination.
South Korea regularly imports around 2-5 million barrels/month of CPC Blend crude, but refiners said they would cut down on the light sweet crude purchases as shipping costs trend sharply higher, while up to two weeks of delivery delays would be expected for first-quarter loading cargoes purchased, refinery and feedstock management sources said.
US crude
Refiners, meanwhile, indicated that logistical risks and higher shipping costs for CPC Blend crude would hardly damage their monthly feedstock procurement plans, as there are ample alternative supply options.
"The Suez Canal and the Red Sea were never an important oil trade route for South Korea," a sour crude and condensate inventory manager at a refiner based in Ulsan said.
South Korea does not necessarily need to depend on North African and Mediterranean supplies, as there is plentiful light sweet US crude being offered, feedstock managers at two refiners said.
Shipments of US crude in December, mostly light sweet grades, including WTI Midland, rose 18.9% year on year to 15.7 million barrels, the customs data showed, marking the biggest volume since 15.09 million barrels received in January 2022.
In total, the world's fourth-biggest crude importer received 88.22 million barrels, or 2.85 million b/d, of crude oil last month.
For the full year 2023, South Korea imported 1,004.1 million barrels of crude, down 2.6% from 1,031.28. million barrels imported in 2022, the customs data showed.
State-run Korea National Oil Corp. is expected to release more detailed oil trade data for December and the full calendar year 2023, including shipments from other major crude suppliers, import costs and stockpiles, after Jan. 26.