Oil Import Diversification
The international oil prices are fluctuating once again due to risks in the Middle East. As the United States says "all options are on the table," including an air strike, in response to a suspected chemical weapons attack in Syria, there has been a big jump in international oil prices. Accordingly, domestic oil refiners are striving to further lower their reliance on Middle Eastern crude oil by diversifying suppliers.
According to related industry sources and the Korea National Oil Corporation (KNOC) on April 12, the price of the West Texas Intermediate (WTI) closed at US$66.82 (71,631 won) on the same day, up US$1.31 (1,404 won) a barrel from a day earlier. The figure surged 2 percent in just one day. It also reached the highest for the first time in three years and five months after December 2014. The price of WTI crude oil grew US$4.76 (5,103 won) this week alone.
In addition, the price of Brent crude oil was traded at US$72.06 (77,248 won), up US$1.02 (1,093 won) a barrel from a day ago. The price of Dubai crude oil also rose US$1.07 (1,147 won) to US$67.58 (72,446 won) a barrel. The surge in international oil prices is largely due to rumors that Western countries, including the U.S., will intervene militarily in Syria over the alleged chemical attack.
With the situation in the Middle East having been rapidly changing, the domestic oil refining industry has been put on emergency alert. Oil refining and investment banking companies expect that the international oil prices will skyrocket by nearly 10 percent when there is a military strike on Syria.
With endless unstable factors in the Middle East, the South Korean oil refining industry is making desperate efforts to lower its dependence on Middle Eastern crude oil. They believe that they can not only secure stable suppliers but also improve the cost competitiveness through the diversification of importing countries.
In fact, the oil imports from the Middle Eastern countries amounted to 151.17 million barrels in January and February, down 3.23 million barrels, or 2.09 percent, from 154.41 million barrels over the same period a year earlier. The share of Middle Eastern crude oil in total imports also dropped 7 percent points from 84.72 percent last year, recording at 77.82 percent.
In particular, the oil imports from Iran slipped a whopping 40 percent from the same period last year. The imports from the United Arab Emirates and Oman also decreased more than 30 percent, dragging down the total oil imports from the Middle East.
An official from the oil refining industry said, “This is because Iran is increasing the amount of ultra light oil, or condensate, to inject into the nation’s petrochemical facilities and reducing the exports. Condensate accounts for over 50 percent of Iran’s crude oil exports so South Korea’s imports greatly declined overall.”
Domestic oil refiners, such as SK Energy Co., GS Caltex Corp., and Hyundai Oilbank Co., have been expanding the crude oil imports from the U.S. from last year. SK Energy and GS Caltex imported 5.52 million barrels and 4.81 million barrels of U.S. crude oil, respectively, last year.
Hyundai Oilbank is said to be importing condensate from Norway in April or May.
However, market experts say that it is still unclear whether the share of Middle Eastern crude oil in total imports will continue to fall. An official from the industry said, “Considering economic feasibility, the price of WTI crude oil doesn’t show a big difference with that of Dubai crude oil. This is why some say that it will be difficult to additionally introduce U.S. crude oil. However, Iran, the third largest importer of South Korea, is reducing the exports of condensate and it can drag down South Korea’s imports of Middle Eastern crude oil as a whole.”