MOSCOW/SEOUL (Reuters) - South Korea has imported four times more CPC Blend crude so far in 2018 than in the same period last year, as the major Asian oil consumer seeks to replace Iranian supplies, shipments data and trading sources said.
South Korea, which consumes about 3 percent of the world’s oil output, is increasingly buying CPC Blend as its refiners prepare to halt imports from Iran and comply with U.S. sanctions on Tehran that will kick-in from November.
The Asian nation’s Iranian oil imports could fall to the lowest in three years in September, sources have said.
The most visible drop in Seoul’s imports from Iran was in May, when purchases fell to 179,444 barrels per day (bpd), the lowest since January 2016, data from the state-run Korea National Oil Corp show.
To view a graphic on Iran supplies to South Korea, click: reut.rs/2tOXLVU
As Iranian imports have fallen, CPC Blend shipments to South Korea since May have been setting record monthly highs and are set to exceed 284,000 bpd in July, Reuters flows system shows.
South Korea bought 4 million tonnes of CPC Blend for delivery in January to July this year, compared to 1 million tonnes in the same seven-month period of 2017.
To view a graphic on CPC supplies to South Korea barrels, click: reut.rs/2IKJhuW
CPC Blend, mostly made of Kazakh oil with some crude from Russia’s Caspian fields, is named after the CPC pipeline through which it flows to the Russian Black Sea terminal of Yuzhnaya Ozereyevka. The pipeline is co-owned by U.S. firm Chevron.
The CPC pipeline capacity has been increased by 20 percent this year to 67 million tonnes, or 1.4 million bpd, which is expected to boost exports and make it cheaper.
Russia and Kazakhstan are expected to increase output after a deal with the Organization of the Petroleum Exporting Countries to ease production curbs that have been in place since January 2017.
Asian traders say CPC Blend offers the same quality as Iranian light crude oil and condensate at a competitive price.
“We have been snapping up purchases of CPC Blend, because of the good economics and quality. We may keep purchasing it if it is economically viable,” a spokesman at South Korean refiner GS Caltex told Reuters.
To view a graphic on Iranian and CPC Blend supplies to South Korea, click: reut.rs/2tNaZml
CPC Blend is a light, sweet crude oil with about 0.5 percent sulphur content and 46.5 API degrees, specifications putting it at roughly the mid-point between Iranian condensate and Iranian light crude, making it a suitable replacement, traders said.
The blend’s traditional market is Europe, where it is usually mixed with other grades, including Russia’s heavier Urals blend.
But European refiners tend to limit intake of CPC Blend due to its high content of mercaptan, a pungent gas. South Korea’s more modern refineries do not have the same challenges processing mercaptan, market sources said.
South Korea is the fourth biggest importer of CPC Blend so far in 2018, behind Italy, the Netherlands and France.
To view a graphic on CPC Blend supplies by destination, click: reut.rs/2IJMURN
Rising flows of CPC Blend have pushed prices down, as Europe has plenty of alternative options for supplies of light barrels from Azerbaijan, West Africa and the United States.
CPC’s discount to dated Brent fell to $2.90 a barrel in May, it widest since 2012, helping drive sales to South Korea for June delivery, traders said. The discount has since narrowed.
To view a graphic on CPC Blend diff, click: reut.rs/2IJ20H8
Editing by Katya Golubkova and Edmund Blair