(Seoul = Yonhap News) Reporter Shin Chang-yong = Tensions between the Korean government and the industry are growing as crude oil exports from Saudi Arabia, the world's largest oil producer, are disrupted amid the intensifying war in the Middle East.
A significant portion of the crude oil introduced in September-October has been secured, so the immediate impact on supply and demand is limited, but there are concerns that supply-demand instability may become a reality for new quantities that need to be secured after November.
According to the industry on the 15th, concerns are growing about disruption in crude oil supply due to the closure of the East-West oil pipeline, which Saudi Arabia has used as a key crude oil transport route bypassing the Strait of Hormuz since the Middle East war.
Since blocking the Strait of Hormuz, Saudi Arabia has been exporting up to 7 million barrels of crude oil per day to the Red Sea port of Yanbu through the 1,200 km east-west oil pipeline across the Arabian Peninsula.
However, operations were halted after at least two locations were attacked by drones on the 11th. The Associated Press, citing local officials, said it would be several weeks before the pipeline was operational again.
International oil prices, which had been stable for a while, immediately rebounded. Brent crude oil futures ended trading above $105 per barrel, and West Texas Intermediate (WTI) futures also exceeded $101. Dubai oil surged 21.3% in one week to $123.66 per barrel.
Accordingly, the previous day, the government held an 'crude oil supply and demand situation emergency inspection meeting' with the oil refining industry, presided over by Vice Minister of Trade, Industry and Energy, to examine the current status of domestic crude oil and discuss future response plans.
At the meeting, the oil refining industry predicted that the short-term impact on supply and demand would be limited as more than 90% of crude oil imports for September and October were secured compared to normal times. Crude oil is usually contracted and shipped two to three months in advance, so the likelihood of immediate disruption is small.
The problem is after November. This is because if there is a disruption in the volume scheduled to be shipped this month, the impact will be reflected in the domestic introduction in November.
In particular, the proportion of Saudi Arabian crude oil among all imported crude oil reaches 34.1% (as of July), so if the normalization of the East-West oil pipeline is delayed, the burden of procurement costs may increase due to increased transportation costs and insurance premiums due to securing alternative crude oil.
Accordingly, the government decided to respond to the crisis by mobilizing all policy tools, including the reserve oil swap (SWAP) system, which was re-implemented on the 24th of last month.
Reserve oil swap is a system in which if an oil refinery proves that it has secured crude oil from overseas, the government first lends the reserve oil and then receives it back later when replacement quantities come into the country.
In addition, the government is considering a plan to increase the support ratio for the difference in freight rates for non-Middle East crude oil, which was raised to 100% and then lowered to 25% to respond to the supply and demand crisis of crude oil from the Middle East.
As international oil prices soared again, the burden on the government to manage prices increased.
The maximum oil price system, which was introduced on March 13 with the original goal of operating for six months, has already passed six months since its implementation, but it is expected that the system will be inevitably extended.
The government plans to announce the 10th maximum oil price soon. Considering the recent surge in international oil prices, the standard price needs to be raised, but the government's concerns are expected to deepen as it may affect consumer prices.
In addition, if the increase in the price of liquefied natural gas (LNG), which is linked to the price of oil, is reflected with a lag, it may stimulate public prices such as electricity and heating bills, which is also considered an additional burden factor.
