US Becomes South Korea’s Key Oil Supplier

  • 24 Oct 2019
  • By Cameron Liao and Nicolas Dupuis
  • Topics: Energy

U.S. crude oil exports have increased exponentially since Congress voted to lift the export ban. In January 2016 right after the repeal took effect, the country’s crude exports were just 490,000 barrels per day (bpd). In the first half of 2019, volumes surged to average around 2.8 million bpd.  The unprecedented growth in U.S. exports of crude oil has made the country one of key suppliers to the global energy market.1

While U.S. crude has now being shipped to dozens of different destinations around the world, a substantial share of exports finds its home in Asia. Among the Asian nations, South Korea has been arguably one of the most important markets for U.S. crude oil. In fact, South Korea is the second largest importer of US crude oil behind Canada.

U.S. Exports of Crude Oil

Source: EIA

Source: EIA

Source: EIA

U.S. market share surges

The arrival of U.S. crude has drastically changed the landscape of South Korean crude oil imports in the past two years. South Korea began to actively import crude oil from the U.S. in 2017. In December 2018, exports of US crude oil into South Korea reached a monthly record high of 618,000 bpd, according to the U.S. Energy Information Administration (EIA) data. In 2017, the U.S. ranked the 11th largest crude oil supplier to South Korea at 37,000 bpd.  Volumes increased almost fivefold in 2018 to 167,000 bpd, ranking US as the sixth largest crude oil exporter to South Korea. In the first eight months of 2019, South Korea’s imports of U.S. crude reached 354,000 bpd, which accounted for about 12% of South Korean total imports.  The U.S. became Korea’s third largest source of supply of crude oil, after only Saudi Arabia and Kuwait.

Source: Petronet

Multiple U.S. grades

South Korea purchases a very diverse slate of U.S. crude oil. During the first half of 2018, South Korea imported mainly WTI and four other grades. For the same period in 2019, the list of U.S. crude oil grades imported had expanded to include a total of 12 different streams. Mars and WTI were the two most popular grades with South Korean refineries.

Source: Thomson Reuters

Source: Thomson Reuters

Risk management

There are several reasons behind the increasing volume of South Korea imports of U.S. crude oil.  Local refineries are sourcing more light crude oil; U.S. crudes trading at discount to other origins; geopolitical tension in the Middle East; and US-Sino trade friction may all have contributed to it.

As U.S. production and export capacity continues to strengthen, U.S. crude is expected to keep flowing into South Korea and other nations in Asia.  The significance of U.S. benchmark WTI prices for the region has increased along with the increased imports.  The growth of U.S. crude in Asia provides an opportunity for local market participants to further adopt U.S. price referencing.2

References

1. In our previous publication “Emergence of a Global Benchmark”, we discussed U.S. production in greater detail as well as the role and impact of U.S. crude as a global oil benchmark.

2. In the Exchange’s publication “Impact of US Shale on Asian Producers” we discussed the role of Asian participants in global energy markets as well as the connection of U.S. pricing references with Asia-Pacific markets.

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