South Korea tests US super light oil as Iran waiver uncertainty grows

South Korea’s top refiner SK Energy, above, and the country’s smallest refiner Hyundai Oilbank are studying the WTL’s assay and testing samples. (Reuters)
Updated 04 April 2019
0

South Korea tests US super light oil as Iran waiver uncertainty grows

  • South Korea is one of Iran’s biggest Asian customers, and was one of eight importers that received waivers to keep buying Iranian oil
  • West Texas Light (WTL) is a potential substitute for Iranian condensate because, when refined, WTL yields the petrochemical producing naphtha

NEW YORK/SINGAPORE: South Korea has begun testing super-light US oil sold by energy firm Anadarko Petroleum Corp. as a substitute for Iranian crude as it awaits word from Washington whether it can keep buying oil from the Middle Eastern nation, sources said.
South Korea is one of Iran’s biggest Asian customers, and was one of eight importers that received waivers to keep buying Iranian oil when the United States re-imposed sanctions in November.
Washington is expected to reduce those waivers in May, disrupting South Korea’s supply of Iranian condensate, an ultra-light crude oil that is used in its large refining and chemical industry.
West Texas Light (WTL) is seen as a potential substitute for Iranian condensate because, when refined, WTL yields a large volume of the refined product naphtha, which can be used to produce petrochemicals. Most WTL is produced in the western part of the Permian Basin in Texas.
Anadarko spokesman John Christiansen confirmed the company is exporting WTL, and said they “anticipate those volumes will continue to grow in the future,” although he did not confirm whether South Korea was testing this grade.
South Korea’s top refiner SK Energy, and the country’s smallest refiner Hyundai Oilbank are studying the crude’s assay and testing samples, the sources said.
“The crude’s API seems to be 48 degrees so in a way it’s possible (to replace Iranian condensate) but again we need to check the oil’s quality,” one of the sources said.
The source is referring to the so-called API gravity of the crude, which measures its density and indicates the type of fuels an oil yields when refined.
A spokeswoman from SK Innovation, owner of SK Energy, and a spokesman from Hyundai Oilbank declined to comment.
South Korea’s interest in West Texas Light is occurring as record US oil production and exports have allowed the Trump administration to use energy as a pressure point in foreign policy. Its largest-scale efforts have been sanctions against Iran’s and Venezuela’s oil industry. Seoul has been negotiating with the United States to extend its waiver, saying there are few alternatives to the Iranian condensate it buys, according to a former US official. Yet to gain an extension South Korea will likely have to reduce its current imports by between 5 percent and 20 percent, three sources familiar with the matter said.
South Korea, a close US political ally, also does not want to jeopardize its relationship with Washington. “They’re scared of Trump. They want to be able to say, ‘Look at me, I am buying all your crude,’” said Sandy Fielden, director of oil and products research at Morningstar. In talks last week with government officials, South Korea asked for maximum flexibility by stressing the importance of Iranian condensate for the South Korean petrochemical industry, according to a statement from the Ministry of Foreign Affairs released last week. Washington is trying to cut Iran’s oil exports to less than 1 million barrels per day (bpd), down from more than 2.5 million bpd last May.
South Korea imported about 176,237 bpd of Iranian crude in the January to February period, according to data from the Korea National Oil Corp. (KNOC), down 38.5 percent from the same period a year earlier.
US crude exports to South Korea averaged about 256,000 bpd in 2018, according to the US Energy Department. But, imports in February surged to 443,000 bpd, the KNOC data showed. South Korea has been buying other types of US light crude, but two buyers — SK Energy and Hyundai Oilbank — recently turned down cargoes of Eagle Ford condensate from Texas after the oil was found to contain impurities.
WTL has largely been blended with other oil grades to be sold at the Cushing, Oklahoma, delivery point for US crude futures.


Pakistani central bank lifts interest rate as inflation bites

Updated 20 May 2019
0

Pakistani central bank lifts interest rate as inflation bites

ISLAMABAD: Pakistan’s central bank raised its key interest rate to 12.25% on Monday, warning that already soaring inflation risked further rises on the back of higher oil prices and reforms required for a bailout from the International Monetary Fund.
The 150 basis points increase follows a preliminary agreement last week with the IMF for a $6 billion loan that is expected to come with tough conditions, including raising more tax revenues and putting up gas and power prices. It was the eighth time the central bank has increased its main policy rate since the start of last year.
With economic growth set to slow to 2.9% this year from 5.2% last year, according to IMF forecasts, the rate rise adds to pressure on Prime Minister Imran Khan, who came to power last year facing a balance of payments crisis that has now forced his government to turn to the IMF.
Higher prices for basic essentials including food and energy has already stirred public anger but the central bank suggested there was little prospect of any immediate improvement.
Noting average headline inflation rose to 7% in the July-April period from 3.8 percent a year earlier, the central bank said recent rises in domestic oil prices and the cost of food suggested that “inflationary pressures are likely to continue for some time.”

 

It said it expected headline inflation to average between 6.5% and 7.5% for the financial year to the end of June and was expected to be “considerably higher” in the coming year. Expected tax measures in next month’s budget as well as higher gas and power prices and volatility in international oil prices could push inflation up further, it said.
It said the fiscal deficit, which the IMF expects to reach 7.2% of gross domestic product (GDP) this year, was likely to have been “considerably higher” during the July-March period than in the same period a year earlier due to shortfalls in revenue collection, higher interest payments and security costs.
Despite some improvements, financing the current account deficit remained “challenging” and foreign exchange reserves of $8.8 billion were below standard adequacy levels at less than the equivalent of three months of imports.
The central bank said it was watching foreign exchange markets closely and was prepared to take action to curb “unwarranted” volatility, after the sharp fall in the rupee over recent days that saw the currency touch a record low of 150 against the US dollar.
Details of what Pakistan will be required to do under the IMF agreement, which must still be approved by the Fund’s board, have not been announced but already opposition parties are planning protests.
As well as higher energy prices that will hit households hard, there are also expectations of new taxes and spending cuts in next month’s budget to reach a primary budget deficit — excluding interest payments — of 0.6% of GDP.
With the IMF forecasting a primary deficit of 2.2% for the coming financial year, that implies squeezing roughly $5 billion in extra revenues from Pakistan’s $315 billion economy, which has long suffered from problems raising tax revenue.

FACTOID

Pakistan’s economic growth is set to slow to 2.9% this year.