Korean oil demand grew y/y by 58 thousand b/d in May to 2.53 mb/d. LPG and naphtha drove gains, at 29 thousand b/d and 63 thousand b/d y/y respectively. Flexicrackers continued to maximise LPG cracking, a trend which started in February, while reduced allocations of South Pars condensate from Iran forced petrochemical firms to turn to naphtha. We expect both trends to persist through Q3 18 at least. Jet demand was up by 10 thousand b/d y/y, but gasoline and diesel fell by 11 thousand b/d and 23 thousand b/d y/y respectively, with the latter hurt by the third straight month of contraction in manufacturing activity in May (PMI reading was 48.9). Fuel oil demand contracted by 8 thousand b/d y/y as LNG was preferred.
Refinery runs were higher y/y by 0.18 mb/d at 3.11 mb/d. Crude imports grew by 82 thousand b/d y/y, led by Europe (+0.20 mb/d) and Americas (+0.18 mb/d), which offset lower imports from Saudi Arabia (-0.24 mb/d) and Kuwait (-0.11 mb/d). Imports from Iran were down y/y for the seventh straight month, by 72 thousand b/d to reach a 29-month low of 0.19 mb/d, and should fall further in Q3 18 due to US sanctions. Net product exports grew strongly by 0.12 mb/d y/y to hit a five-month high of 0.60 mb/d, led by lower imports of fuel oil (-56 thousand b/d) and higher exports of diesel (+55 thousand b/d), with the latter hitting a 10-month high of 0.52 mb/d. Jet exports were at an eight-month high of 0.40 mb/d (+44 thousand b/d). Fuel oil imports should rise from June once S-Oil’s new 76 thousand b/d RFCC ramps up. Refineries raised yields of jet (+1.1 ppts) and diesel (+0.3 ppts) but lowered gasoline yields (-0.8 ppts). Crude stocks drew m/m by 1.8 mb while product stocks built by 1.7 mb m/m mainly on a 1.4 mb build in diesel.