South Korean oil demand ended a six-month streak of y/y declines with a 36 thousand b/d y/y expansion to 2.75 mb/d in January as retail tax cuts and lower oil prices boosted automotive fuel demand. Diesel led the way (+47 thousand b/d y/y) despite the manufacturing PMI showing a third straight month of dampening sentiment (48.3 in January, -1.5 m/m). Gasoline was also up, by 26 thousand b/d y/y, on the back of lower pump prices. In the petrochemical segment, January saw propane margins outperform naphtha to become the preferred petrochemical feedstock as unseasonably warm weather and a buoyant naphtha market increased its competitiveness. As a result, propane demand rose by 34 thousand b/d y/y while naphtha slumped by 24 thousand b/d y/y. Naphtha stocks fell to 12.7 mb (-0.24 mb m/m) in January, mimicking a general trend within total oil product stocks, which came in at 56.4 mb (-6.4 mb m/m) for the month. Fuel oil demand fell by 44 thousand b/d y/y amidst weak bunker demand.
Refinery runs fell y/y in January by 0.21 mb/d to 3.01 mb/d, with volatile crude prices and narrowing refinery margins setting Korean refiners up for a weak Q1 19. Crude imports fell y/y by 0.22 mb/d to 3.0 mb/d amid slowing imports from the Middle East (-0.29 mb/d y/y). South Korea received two Iranian South Pars condensate cargoes in January, yet total imports from the country were still 0.19 mb/d lower y/y. We expect liftings of Iranian condensate to continue in February and March, albeit at reduced levels in anticipation of the expiry of US waivers in May. That said, crude oil imports from the US were 0.2 mb/d higher y/y in January, as Korea tries to maintain a strong relationship with the US by reducing the bilateral trade surplus. Crude stocks fell m/m by 0.46 mb to 50.6 mb but were still 21% higher y/y (+8.6 mb).