"Drought Relief"... The Four Major Oil Companies' 'Subtle Competition'

[Asia Economy Reporter Park Soyeon] As the government plans to purchase 640,000 barrels of strategic oil reserves this year through a lowest-price bidding process, a tense competition has begun among the four major refiners.

According to the Korea National Oil Corporation (KNOC) and the refining industry on the 10th, KNOC is expected to conduct lowest-price bidding for 490,000 barrels of crude oil and 150,000 barrels of diesel as early as mid-month. The corporation had planned to purchase 360,000 barrels this year to secure a total of 107 million barrels of reserves by 2025, in line with the 4th Petroleum Stockpiling Plan.

However, due to the recent sharp drop in oil prices and the financial difficulties faced by refiners, the purchase volume was increased by 1.8 times to 640,000 barrels, and the purchase will be made earlier.

Accordingly, the four refiners?SK Innovation, GS Caltex, S-Oil, and Hyundai Oilbank?are actively conducting simulations including estimating KNOC’s expected bidding prices and sales by comprehensively analyzing international oil market prices and domestic market price trends.

In the international crude oil market, as of the 9th, West Texas Intermediate (WTI) closed at $22.76 per barrel, down 9.3% from the previous day; Dubai crude fell 0.2% to $23.32 per barrel; and Brent crude dropped 2.38% to $31.48 per barrel.

A representative from one refiner said, "The government’s stockpiling volume is larger than expected, so it feels like we’ve been put on a ventilator," adding, "We plan to actively participate in the bidding." Another refiner’s official said, "We are calculating an appropriate price to win the bid," and expressed hope, saying, "Even if we fail to win the bid, it will reduce market supply, which should be helpful."

A KNOC official said, "It would be ideal to distribute sales evenly considering the refiners’ business conditions, but since the purchase is made with government funds, lowest-price bidding is the principle," adding, "However, the refiner that wins the bid at a reasonable price may share the volume with other refiners through private contracts."

He added, "In the case of Korean refiners, quality is guaranteed, so price is the key factor," and said, "Since the purchase is made directly in Korea, transportation costs are reduced, so the winning bid price is expected to be lower than the price for overseas export sales."