By ERIC YEP
South Korean refineries will operate at almost full capacity
in October to benefit from strong refining margins that are expected
to hold up well into the fourth quarter due to tight supply of
A shortage of middle distillate products like diesel and
aviation fuel in the US and Europe due to both maintenance-related and unplanned refinery outages and a lack of
capacity expansion is keeping global premiums
This tightness in the West is attracting cargoes from Asia
and allowing export-oriented refiners like South Korea to enjoy
good margins despite slowing fuel demand in countries like
SK Energy - South Korea's largest refiner, with a capacity
of 1.1 million bpd - earlier planned to shut crude distillation unit No. 2 at its
840,000 bpd Ulsan refinery in October for a month.
It has postponed the maintenance shutdown to 2013 to
exploit good refining margins and recover
inventory losses, said a Seoul-based trader who declined to be
South Korea's complex refining margin to benchmark Dubai
crude averaged around $8.50/bbl as of last week, down slightly
from $9.30/bbl a month earlier.
Refining margins, which act as a market indicator,
will likely continue to remain strong. This is because despite
an increase in US gasoline consumption, there is no global
refining capacity expansion whatsoever, analyst
Youngchan Baek of Hyundai Securities said in a note.
Strong refining margins in Asia are driven
by middle distillates and will be supported by winter demand
for heating oil in Europe and Asian refiners diverting
production to kerosene from jet fuel.
The South Korean government is also trying to contain high
fuel prices by encouraging imports through tax breaks for
electronically traded barrels. Due to this, a substantial
volume of diesel is being imported to South Korea, mainly from
Japan, traders said.
South Korea has traditionally been a diesel exporter, with
exports rising 9.5% to 113.1 million bbl for the January-August
period this year.
However, its diesel imports have also jumped to 1.9 million
bbl for the January-August period from 461,000 bbl during the
same period last year, preliminary data from Korea National Oil
South Korea's diesel imports rose to 826,000 bbl in August
from just 98,000 bbl in April, data showed, indicating local
arbitrage from Japan to South Korea that pushed up the premium
for ultra-low sulfur diesel ex-Japan by 30-40 cents/bbl.
South Korea's refiners - SK Energy, Hyundai Oilbank Corp.,
GS Caltex and S-Oil Corp. - processed around 2.59 million bpd
of crude oil in August, up by about 180,000 bpd from a year
earlier, according to KNOC.
Refinery runs in South Korea are
expected to be around 2.67 million bpd in October, during which
no maintenance is planned, according to
a Dow Jones Newswires survey.
Dow Jones Newswires