Increased Cost Burden on Refineries
South Korea’s imports of U.S. crude oil has eclipsed those of Iranian crude oil for the first time. This is because the U.S. sanctions on Iran limit Korea’s imports of Iranian oil, and shale oil is increasing the price competiveness of U.S. crude oil.
The drop in Korea’s imports of Iranian crude oil is expected to increase the cost burden of Korean oil refineries as Iranian crude is relatively cheaper compared with crude oil from other countries.
According to Petronet, the oil price information system of Korea National Oil Corporation, Korea imported about 7.3 million barrels of U.S. crude oil in August, much more than the two million barrels it imported from Iran in the same period. This means that Korea’s imports of U.S. crude oil exceeded those of Iranian oil on a monthly basis for the first time.
Korea's imports of Iranian crude oil peaked at 11.6 million barrels in March, but fell sharply to two million barrels in August due to the U.S. sanctions on Iran. Korea's imports of U.S. crude oil increased seven-fold from 1.04 million barrels to 7.3 million barrels during the same period. Accordingly, during the January to August period of this year, Korea’s imports of U.S. crude oil rose more than five-fold to 26.87 million barrels from a year before. The percentage of U.S. crude oil imports in Korea’s total also surged from 0.4 percent to 3.57 percent.
In the meantime, Korea’s imports of Iranian crude oil remained at 58.2 million barrels, down 42 percent over the same period. The proportion of Iranian oil imports in Korea’s total also slid from 14 percent to 7.77 percent.
In addition, U.S. crude oil’s increased price competitiveness contributed to the increase in Korea’s imports of U.S. crude oil. On September 28, the West Texas Intermediate (WTI) oil price was US$73.25 per barrel, while Dubai oil surpassed US$80 and finally, was traded at US$80.03. As the proportion of crude oil imported from non-Middle Eastern regions such as the United States has grown, the Korean government is considering abolishing the system to refund some of its taxes on imported oil when importing crude oil from non-Middle Eastern countries.
In the Korean refining industry, experts say that production costs are expected to inevitably rise due to restrictions on Korea’s import of Iranian crude oil. "Iranian crude oil has been sold at a lower price than other crude oil to expand its market share after the U.S. sanctions on Iran," said an official of the oil refinery industry. "Replacing Iranian oil with other crude oil will place heavier cost burdens on Korean oil refiners."