Demand for gasoline and diesel is expected to increase by 3% in 2021

But high prices could hurt consumer confidence and reduce demand by 20,000 bpd

Refiners call for aggressive OPEC + production hike to moderate retail fuel prices

South Korea’s robust economic recovery and rapid progress in its nationwide vaccination program have sparked optimism in the country’s refining sector for improved transportation fuel sales in the second half of 2021, but high retail auto fuel prices could weaken the confidence of consumers, industry officials and market sources. in Seoul said.

South Korea’s optimistic economic indicators and its outperformance in vaccination rates have set the tone for a steady recovery in consumer demand for transportation fuel, but OPEC + ‘s indecisive stance on increasing Crude production could continue to support the upward trend in benchmark oil prices, driving high retail fuel prices and hampering recovery in consumer demand, middle distillate marketers from major southern refiners said. -Koreans and market analysts from the Korea Petroleum Association.

South Korea consumed 100.5 million barrels of gasoline and diesel between January and May, up 3.4% year on year, according to the latest KNOC data.

The country’s exports of goods and services, including electronics, semiconductors, automobiles, and medical devices and equipment, jumped 46% year-on-year in May, marking the fastest growth since August 1988, according to the Ministry of Commerce, Industry and Energy.

As a result, the Bank of Korea sharply raised the country’s GDP growth outlook for 2021 on May 27 to 4%, from a growth projection of 3% made in February.

Reflecting strong economic activity, Platts Analytics expects South Korea’s combined gasoline and diesel demand to rebound to 714,000 bpd in 2021, up 3% from 696 000 bpd in 2020.

However, high retail prices could potentially reduce demand by around 10,000-20,000 bpd as many passenger car owners choose to drive less, while some construction companies put projects on hold until diesel prices are falling, according to fuel marketers at SK Energy. and S-Oil Corp. and market research analysts from the Korea Oil Station Association.

Regular, unleaded gasoline pump prices averaged 1,601 won / liter ($ 1.41 / liter) from June 27 to July 3, the highest weekly price since an average of 1,660 won / liter. liter from October 28 to November 3. 3, 2018, and up 16% from last year’s average of 1,383 / liter ($ 1.22 / liter), according to calculations by S&P Global Platts based on the company’s latest data. ‘State Korea National Oil Corp.

“The economy at large can recover quickly, but the unemployment rate remains a concern and small businesses are still suffering in this pandemic era … consumers are tightening their belts even more, so a price spike would not work in favor. domestic sales, ”said a sales and marketing manager at S-Oil.

OPEC disappointment for Asia

Eleven major Asian refiners and trading companies surveyed by Platts ahead of the July 1 OPEC + meeting had hoped the producer alliance would continue to phase out its production cuts and return at least 1 million barrels a day to the market. in August-September amid the recent oil price. rally.

However, OPEC + ‘s decision to increase collective crude production by 400,000 bpd each August through December remains on hold for now as the UAE and Saudi Arabia seek to resolve. their disagreements.

With ultra-low interest rates and aggressive monetary easing policies expected to continue to support asset, commodity and energy prices at large, Asian end users and consumers are particularly hopeful that the ‘OPEC + will at least play its role in controlling sharply inflated oil prices to the benefit of global consumer confidence and recovery in demand.

Although higher firm prices sometimes work in favor of refiner margins on petroleum products, depending on the forward curve and other pricing mechanisms, prices should not stray too far from market fundamentals. consumer demand, middle distillate marketing managers at SK Innovation in South Korea and PTT in Thailand said. .

India recently renewed its call for the alliance to phase out its production cuts, saying the recent rise in oil prices threatened the recovery of the consumption-driven global economy.

Indian Petroleum Minister Dharmendra Pradhan, who fought with his Saudi counterpart Prince Abdulaziz bin Salman over crude supplies, virtually met with OPEC Secretary General Mohammed Barkindo on June 24 to express their concerns.

The benchmark Dated Brent physical soft crude averaged $ 73.04 / bbl in June, the highest monthly average since $ 81.15 / bbl in October 2018, according to Platts data. Dated Brent has averaged $ 76.71 / bbl so far in July.