Even as there is no sign the Middle East crisis will be resolved, Korea's crude oil supply is improving, giving the refining and petrochemical industries some breathing room. But as a significant portion of the Middle Eastern crude that had been imported is being replaced mainly by U.S. West Texas Intermediate (WTI), warning lights are flashing in the aviation industry and elsewhere. That's because concerns are growing that jet fuel supply disruptions could drag on. Middle Eastern crude is heavy, but WTI is light, leading to differences in the petroleum products that can be produced. Generally, more jet fuel and diesel are produced from heavy crude than from light crude.
According to the government on the 27th, Korea's crude oil imports in May are expected to expand to 87% of last year's monthly average. With April import volumes at only 57% of past levels, the economy was on high alert, but Korea has recovered a substantial portion of imports by finding alternative sources.
The government and refiners mainly secured additional volumes from the Americas and Africa. As a result, dependence on Middle Eastern crude fell 13 percentage points from 69% to 56%. According to the refining industry, refiners in Asia, including Korea, have been importing U.S. WTI, Kazakhstan CPC Blend, and low-sulfur West African crude as substitutes for Middle Eastern crude since the Middle East crisis.
While crude sourcing has eased, the shift in the types of crude being imported has emerged as a pitfall for the aviation industry and others. According to Hana Securities, as of April loadings, the share of light and low-sulfur crude in Asia, including Korea, hit a record 21%, up 10 percentage points from 11% in February.
As the share of light crude increases, production of diesel and jet fuel inevitably declines. That's because middle distillates such as kerosene, jet fuel, and diesel account for 60% of output from Middle Eastern crude, but only 40% from WTI.
Korea is the world's largest exporter of jet fuel. Instead of discarding the 40%–50% of residual fuel oil (bunker C oil), which is the residue from refining Middle Eastern crude, it is further broken down in upgrading units. The petroleum products that come out the most from this process are jet fuel and diesel.
Because U.S. WTI is light, it requires less processing in upgrading units, yields a smaller share of residual fuel, and has a higher share of gasoline and naphtha. Reuters said, "With Asian refiners' crude imports at their lowest in 10 years and refiners having to process light crude due to the Middle East crisis, Asia's refining runs in April and May are expected to plunge," adding, "As a result, production of diesel and jet fuel is projected to decline by at least 1 million barrels per day."
A refining industry official said, "With the Strait of Hormuz blocked, the share of WTI imports is rising even among Korean refiners," adding, "On top of that, diesel prices have been climbing since late last year due to seasonal demand, leading refiners to produce more diesel than jet fuel. Jet fuel and diesel are substitutes, so when diesel production increases, jet fuel production decreases."