South Korean oil demand continued to fall in May (-0.17 mb/d y/y) as US-China trade tensions led exports to fall by 9.4%, the sixth straight month of declines, including a 16.2% y/y fall for petrochemicals. Heavy petrochemical cracker maintenance in May (0.17 Mt of ethylene capacity offline y/y) weighed on naphtha demand (-79 thousand b/d y/y). LPG demand fell by 20 thousand b/d y/y, though the downside was limited by improved cracking margins. We expect heavy cracker maintenance to further impact petrochemical feedstock demand in June, though lower prices and a pick-up in margins should provide support as we head into summer. Diesel demand slid by 36 thousand b/d y/y as the country’s manufacturing PMI fell into contractionary territory in May, coming in at 48.4 (from 50.2 in April), on the back of a fall in new orders and declining factory activity. Gasoline demand was lower by 19 thousand b/d y/y amid rising retail prices.
Refinery runs fell by 0.33 mb/d y/y in May to 2.8 mb/d on the back of historically weak margins that led to announced run cuts. May crude imports fell by a significant 0.48 mb/d m/m and 0.36 mb/d y/y to 2.7 mb/d, as lower imports from the Middle East (-0.25 mb/d y/y) were only partially offset by an increase in flows from the US (+0.19 mb/d). Iranian arrivals into South Korea fell to zero in May, from a near record high of 0.42 mb/d in April, with West Texas Light replacing South Pars condensate. Product imports rose by 18 thousand b/d y/y to 0.92 mb/d, driven by a 50 thousand b/d y/y increase in propane imports. Product inventories increased by 0.29 mb m/m to 61.7 mb in May, with builds in gasoline (+0.96 mb m/m) and asphalt (+0.23 mb m/m) partially offset by a draw in jet fuel (-0.98 mb m/m). Crude stocks fell by 2.7 mb m/m on lower imports.