Living with COVID-19 phase, lower tax to support fuel consumption recovery
Refiners wary of rising infections, new virus variant possibly hurting demand
Average refinery run rate could fall to 80% or lower if new lockdowns imposed
South Korea's oil product demand in October rose 11.7% from a year earlier, driven by robust transportation fuel consumption amid rapidly easing COVID-19 restrictions, but major refiners raised concerns that new coronavirus variant could spur a new phase of lockdowns and curb consumer fuel demand recovery.
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Register NowThe country consumed 78.19 million barrels, or an average of 2.52 million b/d, of refined oil products last month, compared with 69.97 million barrels a year earlier, data released by Korea National Oil Corp. showed Nov. 29.
For the first 10 months of 2021, South Korea's oil product consumption rose 5.6% year on year to 770.89 million barrels, the KNOC data showed.
Transportation fuels, especially gasoline and jet fuel, led the country's October oil consumption increase as the government started to rapidly ease movement restrictions across the nation since mid October.
Gasoline demand in October rose 1.4% year on year to 6.72 million barrels. Over January-October, gasoline consumption increased 4.6% year on year to 69.87 million barrels, the KNOC data showed.
In addition, jet fuel demand climbed 13.1% year on year to 1.99 million barrels in October, rising for the third straight month, with an increased number of people taking domestic flights. Some international flight routes also started to open up from October, with fully vaccinated individuals permitted to travel between South Korea and Singapore without quarantine since last month.
Seoul's decision to shift to a phase of living with COVID-19 from Nov. 9, could further support South Korea's demand for the middle distillate fuels, refinery and industry sources told S&P Global Platts.
In addition, the government has lowered taxes on auto fuels by as much as 20% for six months from November in an effort to lower retail automotive fuel prices and tame accelerating consumer inflation.
Taxes account for about 50% of the retail gasoline price, 40% of the diesel price, and 30% of the butane price, which have prompted consumers to ask for a tax reduction.
Domestic oil taxes are included in the transport tax, driving tax, consumption tax, education tax and value added tax.
Cautious on new COVID-19 variant
Despite the recent improvement in domestic consumer demand, as well as rising middle distillate exports, South Korea's major refiners including SK Innovation, S-Oil Corp. and Hyundai Oilbank indicated that the industry is wary of a rapidly spreading new coronavirus variant that the health minister of South Africa announced Nov. 25.
In addition, middle distillate marketers and distribution managers at the refiners warned that there is a growing possibility the South Korea government may consider scrapping the 'living with COVID-19' phase and implement new rounds of restrictions, or lockdowns, should the number of infection cases continue to move higher.
"The major refiners have been ramping up crude throughput but the rising refinery runs could come to a halt if new rounds of restrictions or lockdowns are announced," a middle distillate marketer at S-Oil Corp. said.
The country's nationwide run rates averaged around 81% in the first 10 months, according to latest data from Korea Petroleum Association and industry information collected from major the refiners by Platts.
According to multiple refinery operation and fuel marketing managers at the major refiners surveyed by Platts early in November, the Q4 average nationwide run rate was tipped to rise above 85%.
However, the survey participants indicated Nov. 29, the average refinery run rate would be forced to pull back to 80%, or even lower, in the event Seoul, as well as governments across the globe impose new rounds of border closures and lockdowns.
Rising infection cases
The fuel marketers at the major refiners said the companies are closely watching the daily infection cases and the weekly trend in order to assess their near and medium term plant operation and production strategies.
Since the Seoul's announcement to shift to a phase of living with COVID-19 early this month, South Korea has been suffering from the worst COVID-19 with the massive spikes of confirmed cases for the past few weeks despite the high nationwide vaccination rate of over 80%.
The nation's daily virus cases reached 4,116 Nov. 24 which marked the biggest-ever since the outbreak of the pandemic in late January 2020.
About 78% of the new cases have been in the densely populated Seoul metropolitan area, home to half of the country's population, which use the bulk of the country's fuel consumption.
"Infection case and population mobility data have become the core of refiners' business planning," the S-Oil Corp. marketer said.
Death toll in the country rose 34 on Nov. 25 to reach 3,401 in total, which marks the biggest daily increase in 10 months.
South Korea's oil product consumption (Unit: '000 barrels)
Product
Oct-21
Oct-20
Change (y/y)
Sep-21
Change (m/m)
Naphtha
38,383
30,951
24.0%
39,627
-3.1%
Gasoil
13,306
13,462
-1.2%
13,846
-3.9%
LPG
9,895
10,459
-5.4%
9,466
4.5%
Gasoline
6,719
6,626
1.4%
7,578
-11.3%
Jet fuel
1,989
1,759
13.1%
1,809
10.0%
Kerosene
1,504
1,118
34.5%
1,117
34.6%
Bunker C (Fuel Oil)
1,599
1,529
4.6%
1,736
-7.9%
Others
4,795
4,068
17.9%
4,630
3.6%
Total
78,190
69,972
11.7%
79,809
-2.0%
Product
Jan-Oct 2021
Jan-Oct 2020
Change
Naphtha
371,908
344,263
8.0%
Gasoil
136,173
133,557
2.0%
LPG
102,275
101,509
0.8%
Gasoline
69,868
66,794
4.6%
Jet fuel
17,336
18,071
-4.1%
Kerosene
12,359
12,194
1.4%
Bunker C (Fuel Oil)
17,362
17,736
-2.1%
Others
43,611
36,109
20.8%
Total
770,892
730,233
5.6%
Source: Korea National Oil Corp.
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South Korea's Oct fuel demand improves; refiners wary of potential new lockdowns - S&P Global
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