Fitch Solutions anticipates a strengthening of the Gulf-Korean oil trade in 2024. The agency predicts an increase in South Korea’s oil imports in the long term, emphasizing the nation’s commitment to long-term oil stability. This commitment was evident through agreements signed by the National Crude Company, last year, with Saudi Arabia and the UAE for joint oil storage in Korea.
In January 2023, the Korean National Oil Company signed an agreement with the Abu Dhabi National Oil Company (ADNOC) to import approximately 4 million barrels, stored at the Yeosu storage station.
Another agreement, signed with Saudi Arabia in October 2023, involves the import of 5.3 million barrels to be stored in facilities owned by the Korean company, reports Al-Qabas daily.
Fitch Solutions highlights the Free Trade Agreement between South Korea and the Gulf states signed in December 2023. The agreement aims to boost oil trade and investment relations, with South Korea eliminating customs tariffs on around 90% of oil imports from the Gulf states, including LNG, crude oil, and other petroleum products.
However, Fitch notes that crude oil imports to the Korean refining industry did not increase in 2023 due to lower domestic fuel consumption. The agency expects the free trade agreement to enhance crude oil imports from the Gulf states in the short and long term, maintaining the Gulf’s strong position in the Korean market.
South Korea imported over 55% of crude through long-term contracts in 2022, and this share is expected to rise to 62% and beyond in 2023 due to agreements with “Aramco” and “ADNOC.” While there is potential for increased competitive pressures from American oil imports, the agency suggests that Gulf oil exporters are crucial for long-term crude oil supplies to Korean refiners.
Fitch Solutions cautions that the free trade agreement might negatively impact oil trade between South Korea and the U.S. as Gulf crude imports will be exempt from customs duties. Monitoring Korean refiners’ response to the agreement’s implementation is essential, as the long-term outlook for domestic oil consumption in Korea indicates a downward trajectory due to the slowdown in fuel consumption.