(Updates with analyst comment in fourth paragraph.)
March 12 (Bloomberg) -- South Korean refiners that import North Sea crude stand to receive smaller rebates on their exports of oil products under tax changes scheduled to start April 1, according to government and refinery officials.
The government asked oil companies to submit comments on the proposed tax revisions by March 18, according to officials at the Korea Customs Service, SK Innovation Co. and the Korea Petroleum Association, which represents the country’s four oil- processing companies. They asked not to be identified, citing department and company policies.
The new rules would apply to importers of North Sea crude, which have been exempted from an import tariff of 3 percent since South Korea signed a free trade agreement with the European Union in 2011, the officials said. Asia’s fourth- largest economy, which imports almost all its crude, purchased a total of 39.8 million barrels from Norway and the U.K. in 2012, or about 4.2 percent of total imports, according to data from Korea National Oil Corp.
“The favorable economics that help offset higher shipping cost may be reduced or removed,” Duke Suttikulpanich, an oil and gas analyst at Standard Chartered Bank, said today from Singapore. “Korean refiners can easily switch back to Middle East crude for the North Sea portion.”
The government proposal wouldn’t change the free-trade exemption for North Sea crude imports, according to the officials. It would adjust the refund depending on the proportion of the refiners’ crude imports that aren’t subject to the tariff, according to a statement on the Korea Customs Service’s website on Feb. 25.
The value of the nation’s exports of oil products amounted to 54 percent of the crude imports in 2011, according to the most recent figures available from the Ministry of Knowledge Economy.
The EU isn’t considering a revision of the oil part of a free-trade agreement with South Korea, according to an EU official in Brussels who spoke yesterday on the condition of anonymity, citing government policy.
Speculation that the EU and South Korea were considering revising their free trade agreement might have contributed to yesterday’s narrowing of backwardation, or price difference between Brent for immediate and longer-term delivery, Vienna- based JBC Energy GmBH said yesterday in a report.
Brent fell 0.6 percent, the largest one-day drop in 10 days, to settle yesterday at $110.22 a barrel in London. The crude’s backwardation dropped to $1.11 a barrel yesterday, the lowest since Sept. 18. A narrower backwardation typically signals weakening demand or growing supply.
The Brent-Dubai Exchange of Futures for Swaps, or EFS, which measures the price spread between the European and Mideast benchmarks, dropped 67 cents to $4.05 a barrel, the lowest since Nov. 29.
South Korea imported 947.3 million barrels of crude last year, mainly from Saudi Arabia, Kuwait and Qatar. It purchased 85 percent of its imports from the Middle East, 9.3 percent from Asia and the rest from Europe, Africa and South America, according to data from Korea National Oil Corp. It imported no crude last year from the U.S., which also has a free trade agreement with South Korea.
The Asian nation imported 5.17 million barrels of North Sea crude for the first time in 2011, or 0.6 percent of its overall crude purchases, after its free trade agreement with the EU took effects in July, according to government data.
Seoul-based SK Innovation, the country’s biggest refiner, is studying the proposed tax revisions. “It’s premature to say whether the regulation change would affect our purchasing policies,” Yoo Jung Min, a spokesman at SK Innovation, said by phone today. North Sea crude accounted for a “minor” portion of its overall purchases, he said.
--With contributions from Rupert Rowling in London and Ewa Krukowska in Brussels. Editors: Mike Anderson, Paul Gordon.