"Winter Worries: Refineries on Alert as Saudi Pipeline Attack Raises Supply Strain"

Daily 5 Million-Barrel Oil Transport Line

Three-Month Stock Secured, No Immediate Impact

December Delivery Contracts Likely to Increase in Price

Concerns Over Profitability Worsening Under Price Ceiling

The domestic refining industry is on high alert regarding crude oil procurement and supply following damage to Saudi Arabia's main oil pipeline, which previously transported an estimated 5 million barrels of crude oil per day. As tensions have escalated near the Strait of Hormuz after the Iran war, even Saudi Arabia’s East-West pipeline, which served as an alternative route, has been blocked. As a result, concerns are mounting that securing the amount of crude oil needed for this winter will become increasingly difficult.

According to the industry on September 15, refiners are closely monitoring the situation in the Middle East in real time and responding with emergency meetings. Refiners have pre-secured a three-month supply of crude oil, so they believe there will be no immediate impact on supply for now. However, it is expected to take around four to five weeks for the blown-up Saudi pipeline pumping station to be restored to normal. This means that, in order to sign contracts for crude oil deliveries arriving in December, they will likely have to pay higher costs than they do now.

An industry insider explained, "In the short term, there should be no supply disruption, as small domestic vessels can receive oil transferred from large crude carriers using ship-to-ship (STS) operations." However, the insider added, "If this situation persists, the blockage of the Saudi pipeline will make procurement more difficult and tighten the market even further."

Crude oil prices are climbing across the board. On September 14 (local time), November Brent crude futures on the London ICE Futures Exchange closed at $105.68 per barrel, up 1.02% from the previous session. October West Texas Intermediate (WTI) crude futures on the New York Mercantile Exchange ended at $101.39 per barrel, a 1.34% increase versus the prior session.

Despite rising crude prices, domestic refiners are expected to face unavoidable profitability deterioration due to the price ceiling system. The government implemented this price cap in March, and has maintained it for six months, freezing prices six times during that period. When the 7th price ceiling was instituted on June 26, the price stood at 1,784 won per liter, a level that remains in effect even now.

The price ceiling system has created a disconnect between domestic refinery sale prices and international petroleum prices. According to Opinet, the Korea National Oil Corporation’s price information system, the international petroleum product price in March this year was 1,286 won per liter, but the price at which refiners supplied pre-tax fuel to gas stations in the same period was only 893 won. Last month, the international price was 1,015 won per liter, compared to a pre-tax supply price of 984 won. Contrary to global trends, domestic petroleum product prices have not increased, which led to domestic gasoline consumption in July rising to 8.86 million barrels, surpassing the previous all-time July high of 8.856 million barrels.

Refiners are working to diversify their crude supply chains and secure alternative transportation routes, but as the situation changes rapidly, there are increasing calls for long-term measures at the government level. An industry representative stated, "If this crisis drags on, it will require more active intervention from the government. If further facility destruction occurs in the future, even government strategic oil reserve swaps should be considered."

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