S.Korea KNOC denies oil reserves offer to refiners

AFX UK Focus) 2008-10-29 03:18

S.Korea KNOC denies oil reserves offer to refiners

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SEOUL, Oct 29 (Reuters) - State-run Korea National Oil Corp (KNOC) said Wednesday it had weighed up loaning crude reserves to local refiners to cushion the impact of global financial crisis, but had not made an actual offer.

"The idea of releasing reserves was considered on a practical level to ease the global financial shock," KNOC said in a statement responding to an earlier Reuters report.

"But it was dismissed with the fall in crude oil prices and KNOC has not made any such offer to refiners and does not feel any necessity to do so."

Documents obtained by Reuters on Tuesday showed that KNOC had offered to loan local refiners as much as a tenth of its reserves to soften the impact of a deepening global financial crisis, and help narrow its yawning current account deficit and support the tumbling won.

The d0cument, sent to local refiners, offered around 9.6 million barrels of its crude reserves.

South Korea's energy ministry said late on Tuesday the government had nothing to do with the internal d0cument made by KNOC and it has not considered using strategic reserves to soften the impact of a deepening global financial crisis.

The world's major industrialised nations built up over 1.5 billion barrels in emergency crude oil reserves after the Arab oil embargo of the 1970s in order to improve their energy security, but most restrict their use to severe supply disruptions such as the 2005 hurricanes in the U.S. Gulf.

But with global financial markets in a tailspin and credit markets all but frozen, world governments have leapt to the aid of imperilled economies and domestic banks. South Korea has been hit harder than many in Asia as its currency dives.

"Member countries are allowed to use or release oil on individual decisions if it is on top of the 90-day reserve required by IEA," Nobuo Tanaka, Executive Director of the International Energy Agency, an advisor to 28 industrialised countries, said in response to the Reuters report.

South Korea's state crude reserves could last around 140 days.

(Reporting by Angela Moon; Editing by Keiron Henderson) .

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S.Korea offers crude reserves to ease strain

Tue Oct 28, 2008 6:57am EDT

SEOUL (Reuters) - South Korea has offered to loan local refiners as much as a tenth of its crude oil reserves in the latest effort to soften the impact of a deepening global financial crisis.

Refiners would be able to defer costly crude imports for a month if they take up the offer of discounted oil, helping Seoul to make good its promise to narrow its yawning current account deficit and support the tumbling won currency.

But analysts said the loan -- an unusual move among nations that normally keep their reserves intact in case of a severe disruption in supply -- would provide short-term relief at best.

Seoul has offered to loan refiners 9.6 million barrels of crude from its government reserves at $70 a barrel, but using a deeply discounted won conversion rate that makes the oil cheaper than current spot rates, a d0cument from the state-owned Korea National Oil Corp (KNOC) obtained by Reuters showed.

A source close to the matter said the offer was made to attempt to improve South Korea's trade account data, as oil is one of the country's biggest import items.

South Korea has said its balance of payments would turn positive from October and help stabilize the financial market.

One refiner will take up the offer while a second one will not, the source said.

The crude sale would be valued at about $671 million, a small but meaningful sum compared to its $8.4 billion current account deficit in the first eight months of this year on a seasonally adjusted basis.

South Korea is the world's fifth-largest crude buyer, and crude accounts for a quarter of total imports.

"The government knows that they need solid figures in current account to boost the won's value," said Kim Jae-eun, analyst at Hana Daetoo Securities.

"This may work in the immediate future, but the (crude) would eventually have to be made up in coming months," she added.

State-run KNOC declined to comment on the d0cument.

RESERVED RESERVES

The world's major industrialized nations built up over 1.5 billion barrels in emergency crude oil reserves after the Arab oil embargo of the 1970s in order to improve their energy security, but most restrict their use to severe supply disruptions such as the 2005 hurricanes in the U.S. Gulf.

But with global financial markets in a tailspin and credit markets all but frozen, world governments have leapt to the aid of imperiled economies and domestic banks. South Korea has been hit harder than many in Asia as its currency dives.

The market turmoil has also complicated day to day trading operations for many energy and commodity companies, with South Korean refiners squeezed both by tighter credit and falling won-based fuel sales versus dollar-based crude oil costs.

KNOC offered 4.9 million barrels to SK Energy (096770.KS: Quote, Profile, Research, Stock Buzz), 3.06 million barrels to GS Caltex and 1.65 million to Hyundai Oilbank, the d0cument showed.

Second-biggest refiner GS Caltex has agreed to buy the state crude, although it was not clear how much it would buy, another industry source close to the matter said.

The source said SK Energy, the country's top refiner, did not take the offer as it has secured sufficient supply until December. It was not immediately available whether Hyundai had taken up the offer, and third-largest S-Oil (010950.KS: Quote, Profile, Research, Stock Buzz) was not offered as the refiner only takes term volumes.

The crude is supposed to be repaid within 30 days, the d0cument stated. South Korea holds about 100 million barrels in its state oil reserves under its obligation as a member of the International Energy Agency (IEA).

The South Korean won, one of the world's worst-performing currencies this year, has tumbled nearly a third in just three months to a more than 10-year low, hit by worsening trade data and massive stock sales by foreign investors.

Although KNOC's asking price was higher than the current market price of high-$50s a barrel for benchmark Dubai crude, it was made at a favorable foreign exchange rate of 1,200 won per dollar, versus Tuesday's closing rate of 1,467.7.

Excluding other factors such as shipping costs and interest charges applied to finance import deals, the state offer would give refiners a savings of about around 4,000 won ($2.69) per barrel, according to Reuters calculations on the data.

South Korea, heavily dependent on foreign reserves, secures 60 percent of its monthly crude oil imports -- an average of 73 million barrels per month -- in term volumes, while the rest is secured from the spot market, according to a KNOC data.

(Reporting by Angela Moon; Editing by Jonathan Leff)

http://www.reuters.com/article/GCA-Oil/idUSTRE49R23O20081028?pageNumber=1&virtualBrandChannel=0