Over the past few years South Korea has enjoyed a good trade agreement with European Oil Producers working in the North Sea, but that is all about to change as the IEA expects imports to drop due to a tax change.
Oil produced in the Middle East is obviously much closer to South Korea than crude produced in Africa, Europe, or America. So in order to encourage the use of a diverse number of sources for its imported oil, and not rely solely on the Middle East, various schemes have been set up to benefit Korean refiners that decide to import from other regions.
South Korea is currently the world’s fifth largest buyer of crude oil, and signed a trade agreement with the EU in July 2011 that offered an exemption from a 3 percent tax that other crude oil customers have to pay. Korean refiners then receive a tax rebate for any refined products that they export, and last but not least, the government reimburses 90% of the difference in transit costs of imports shipped from around the world compared to the Middle East (meaning that they aren’t punished for buying crude oil from further away).
The IEA, in its Oil Monthly Report stated that unfortunately, from the beginning of next month the Korean buyers importing crude from the EU will no longer be able to claim the rebate. “The economic benefits that fuelled brisk North Sea-Korea trade over the past few years will be reduced.”
Analysts at JBC Energy GmbH, have predicted that Korean imports of North Sea crude will fall from 110,000 barrels a day in 2012, to just 55,000 barrels a day in the future.
By. Joao Peixe of Oilprice.com
Joao is a writer for Oilprice.com