Late last year, OPEC member countries and non-OPEC oil-producing countries such as Russia agreed to reduce their oil production by 1.8 million barrels a day for the first half of this year. The implementation of the agreement has led to an increase in Dubai crude price in spite of an increase in crude oil export from Iran and breach of the agreement by some. The production cut is likely to be extended soon.
Under the circumstances, oil companies in South Korea, which imports 80% of the oil it uses from the Middle East, are diversifying their import sources to the United States and Russia. For example, GS Caltex brought in two million barrels of Eagle Ford crude from the U.S. in November and December last year. More recently, the company imported Ural crude, too.
Two months ago, SK Innovation purchased one million barrels of Ural crude from Lukoil, a Russian oil company. Hyundai Oilbank signed a contract with Shell to import two million barrels from the Gulf of Mexico.
The ongoing diversification by the South Korean oil companies as well as their counterparts in China and Japan is resulting in some change in supply and demand dynamics. For instance, Saudi Arabia recently lowered its official selling price (OSP) for Asia and May by US$0.3 per barrel from a month ago. The OSP for Asia is determined by the average of Dubai and Oman crude prices.