South Korea's Ministry of Trade, Industry and Energy (Motie) has introduced mandatory export caps on refined petroleum products, curbing shipments to 100pc of monthly 2025 levels in an effort to safeguard domestic supply.
The directive, applied to gasoline, diesel and kerosene on 13 March, will be extended to include naphtha, as the government seeks to secure feedstock availability due to continued supply disruptions through the strait of Hormuz.
The export limits are intended to complement recently introduced domestic price controls. By restricting exports to prior year volumes, Motie aims to discourage refiners from diverting supplies into higher priced international markets. The ministry may adjust the export ceilings in consultation with industry stakeholders, according to government documents.
The country's major refiners are also required to maintain domestic supply at no less than 90pc of volumes recorded during the same period last year for March and April, South Korean market participants told Argus, citing the ministry's announcement.
The new measures include wholesale price caps that took effect on 13 March, with ceilings set at 1,724 won/litre for gasoline, W1,713/litre for automotive diesel and W1,320/litre for kerosene.
Motie has indicated it may provide compensation to refiners for losses incurred under the new measures and has instructed companies to submit supporting documentation for any claims.
The measures are scheduled for review after 14 days, when the government is expected to reassess the policy in light of the ongoing developments.
Market Impact
In terms of market impact, the development is viewed as positive and offers some relief as it stops short of a full export ban, though the effect is expected to vary across products.
Market participants were initially wary that South Korea might implement a full oil product export ban, similar to the measures adopted earlier by China. South Korea and China together account for more than half of the Asia Pacific region's seaborne clean product export supply, based on data from Kpler.
Refiners are likely to maintain their term exports of oil products, but will offer little to no additional volumes on a spot basis, South Korean market sources said.
For gasoline, term contract volumes are likely to proceed as planned, while spot availability could shrink sharply in the near term. But the drop in spot supply will also be driven by current dislocations in Dubai crude pricing, according to a South Korea–based gasoline trader.
"Gasoline refining margins are currently negative against Dubai crude pricing, so irrespective of government policy, spot volumes will be significantly reduced," the trader said.
The dislocation in gasoline crack spreads has been driven by a sharp jump in Dubai crude prices, with crude rising disproportionately faster than gasoline. Many Asian refiners buy Middle Eastern crude on Dubai pricing and typically hedge their procurement and spot sale requirements against Dubai.
"It even makes more sense to export fuel oil instead of processing it through the fluid catalytic cracker (FCC) unit, with fuel oil margins against Dubai looking much more attractive," the trader added. Refiners will also be more incentivised to raise jet fuel yields at the expense of gasoline, said another Korean fuel trader. Latest spot deals for jet fuel buying demand in the region indicate that early April loading Medium Range (MR) jet fuel cargoes can fetch cash premiums of around $20–30/bl to Singapore spot jet fuel assessments, according to feedback gathered by Argus.
But export regulations and run cuts at other north Asian exporters, such as China and Taiwan, will still keep the Asia Pacific jet fuel complex tight. Korean refiners, including Hyundai Oilbank, have already planned lower jet fuel exports in April because of planned maintenance at the 520,000 b/d Daesan refinery.
Korean refineries in total average around 326,000 b/d of gasoline exports. Gasoil exports from South Korea average around 553,000 b/d, while jet exports account for about 246,000 b/d. Refiners in Korea also typically export around 300,000t of naphtha per month, mostly to neighbouring countries like Japan and China, although this is dwarfed by the roughly 2mn t/month of naphtha imports that moves into Korea — of which roughly 60-70pc comes from the Middle East.
But this development should still provide some relief to import reliant countries such as Australia, which has term negotiated gasoline and gasoil volumes with South Korea.
Australia has already implemented measures such as suspending its gasoline quality standards to boost supply flows and relaxing the country's minimum stockholding obligation (MSO) to enable more fuel to reach the market. These are among the steps taken to mitigate growing fuel security risks.
Fuel suppliers have already chartered rare gasoline and diesel cargoes from as far as the US Gulf Coast for late March loading to meet Australian demand, according to trade sources and ship brokers. It typically takes more than one month for an MR tanker to sail from the USGC to Australia.
Feedstock concerns still loom
South Korean refiners continue to grapple with disruptions to Middle Eastern crude supply, though the strain has been partially eased by the recent strategic petroleum reserve (SPR) release by the government and fresh US sanctions waivers on Russian oil.
While direct intake of Russian crude by South Korean refiners remains unlikely, the waivers are expected to redirect a larger share of Russian cargoes towards Indian buyers. This, in turn, could free up alternative grades for Korean refiners, including the potential for increased nominations from Saudi Arabia's Yanbu port, supported by the diversion of crude flows via the kingdom's 7mn b/d east–west pipeline.
Some refiners have also begun exploring procurement options beyond their traditional slate, with discussions extending to more unconventional grades — including even the possibility of securing Libyan crude, a Korean refining source noted.
