Korean Refining and Petrochemical Industries Face Critical Period at Month-End and Early Next Month [Click eJongmok]

G7 Agrees to Release Over 300 Million Barrels from Strategic Petroleum Reserves
Assumes Supply Disruptions May Last Over a Month
Production Facilities May Halt Operations Amid Ongoing Shortages

As the Strait of Hormuz has been controlled due to the war between the United States and Iran, disruptions in crude oil shipments continue. The domestic refining and petrochemical industries are expected to face a critical period starting from the end of this month to early next month.

On March 12, Yuanta Securities projected that even with the release of Strategic Petroleum Reserves (SPR) by the United States and other major countries, such a crisis was inevitable. On March 3, Iran's control over the Strait of Hormuz reduced daily crude oil exports from the Gulf region by 11 million to 12 million barrels. Exports from Saudi Arabia and Iraq each fell by 3 million barrels, while supplies from Kuwait (2 million barrels) and Iran (1.5 million barrels) also contracted. As a result, international oil prices surged from around $60 per barrel to approximately $90 per barrel.

On March 9, major countries, including the Group of Seven (G7), agreed to release more than 300 million barrels from SPR. In the short term, this measure can temporarily ease supply disruptions and prevent further increases in international oil prices, but concerns remain. Kyu-Won Hwang, a researcher at Yuanta Securities, explained, "The fact that the SPR release is between 300 million and 400 million barrels assumes that crude oil supply disruptions caused by the control of the Strait of Hormuz could last for at least a month," adding, "Korean industry must also prepare for the worst-case scenario."

Korean refiners anticipate that the end of this month will be a turning point. Assuming continued disruptions in crude oil shipments via the Strait of Hormuz, the daily crude oil imports of Korean refiners will decrease from 3 million barrels to 1.6 million barrels. With private crude oil inventories at 38.21 million barrels as of January this year and daily imports excluding Hormuz at 1.6 million barrels, if refineries continue to operate at a daily throughput of 2.97 million barrels, inventories could be depleted within a month. From next month, a production cut in petroleum products is expected to be inevitable, making government-level intervention unavoidable.

Researcher Hwang said, "Reducing exports of petroleum products and expanding domestic reserves, along with introducing a price ceiling on gasoline and diesel, could help prevent a surge in prices. If imports of crude oil through Hormuz are further delayed, the release of strategic petroleum reserves on a full scale and fuel rationing to control consumption could follow."

The situation is even more urgent for petrochemical companies. Domestic naphtha cracking center (NCC) operators have about 2 to 3 weeks' worth of naphtha, their main feedstock, in inventory. They cannot rely on Korea National Oil Corporation's strategic reserves, as most of these reserves are crude oil. Against this backdrop, petrochemical companies began operating at reduced rates, in the mid-70 percent range, starting from the second week of this month, ahead of refineries. Researcher Hwang emphasized, "If Hormuz-sourced naphtha does not arrive in Korea by early next month, NCC facilities that depend on imports will have to halt operations. Manufacturers of IT exterior materials, automotive materials, construction materials, and textile materials could face severe shortages of chemical products."

This content was produced with the assistance of AI translation services.