South Korea's U.S. oil imports to hit all-time high in Sept, Oct: sources, data

SEOUL/SINGAPORE (Reuters) - South Korean imports of U.S. crude oil are set to hit all-time highs in September and October as refiners snap up supplies to replace Middle East grades, four sources with knowledge of the matter said.

U.S. crude loadings for South Korea have been rising since July and arrivals are expected to reach 6 million barrels in each of September and October, the highest ever, according to the sources and trade flow data on Thomson Reuters Eikon.

South Korea’s imports of U.S. crude jumped more than fourfold to 14.1 million barrels in the first half of the year from a year ago, according to data from state-run Korea National Oil Corp. That’s an average monthly intake of 2.35 million barrels of U.S. crude.

The increase in American oil shipments follows the world’s fifth-largest oil importer halting Iran crude loadings from July, ahead of U.S. sanctions, while its refiners are also seeking cheaper alternatives to Iraq’s Basra crude.

“South Korean refiners are turning to U.S. crude because of Iran sanctions ... They will bring in more U.S. crude in the second half of the year because a wider WTI-Dubai spread is making U.S. crude purchases economically viable,” said Kim Jae-kyong, a research fellow at Korea Energy Economic Institute.

The country’s top two refiners SK Energy [SKENGG.UL] and GS Caltex [GSCAL.UL] bought 2 million barrels of U.S. crude each for October arrival, while its smallest refiner Hyundai Oilbank [INPTVH.UL] has also purchased 2 million barrels of medium-sour Mars crude for the first time, the sources said.

The South Korean refiners declined to comment on the deals.

A supertanker arriving South Korea in October for SK Energy hold 500,000 barrels of Mars crude, along with other grades such as West Texas Intermediate (WTI) Midland, the sources said, while GS Caltex bought 2 million barrels of Mars.

For September, two very large crude carriers (VLCCs) are scheduled to arrive at Yeosu, where GS Caltex’s refinery is located, while the exact destination of a third is not yet known, trade flows data showed.

“The quality of Mars is better than Basra Light,” one of the sources said, noting that the API gravity for Mars is at 31 degrees while that for Basra Light is 28 degrees.

A higher API number means a crude oil will yield more higher-value products such as gasoline and diesel. The sulphur content for Mars is also a little lower than that for Basra Light, the source said, making it easier to process.

Price differentials for the medium-sour Mars grade to Dubai quotes on arrival in North Asia have fallen to 50 cents to $1 a barrel, down from indications of $1-$1.50 at the start of July, partly as China avoided U.S. crude due to potential import tariffs.

Reporting by Jane Chung in SEOUL and Florence Tan in SINGAPORE; Editing by Tom Hogue