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South Korean bunker suppliers S-Oil Corporation and Hyundai Oilbank Co. Ltd. - the country's two smallest refiners - have taken the rare step of purchasing spot bunker fuel oil cargoes in order to meet demand following a drop in refinery run rates and an increase in the production of asphalt, Reuters reports.

Refiners in the country have been recently forced to cut their refinery run rates due to weak refining margins and slow product demand. This has also led to a cut in the production of fuel oil - a by-product that refiners generally try to minimize production of in favour of other higher-margin petroleum products.

A recent increase in asphalt demand encouraged S-Oil - South Korea's third-largest refiner - to ramp up production of the road surface product. It is understood that the company decided to adjust its crude distillation unit (CDU) run rate while increasing asphalt production following a period of poor margins lasting around three to four months. However, fuel oil production has decreased as a result, a South Korea-based trader told Reuters.

Meanwhile, current fuel oil production by Hyundai Oilbank - the country's smallest refiner - is said to be minimal. "Oilbank doesn't produce fuel oil nowadays. Theoretically, all the fuel oil from the CDU is used as feedstock for their secondary units," one South Korea-based marine fuel trader was quoted by Reuters as saying.

According to market sources, S-Oil and Hyundai Oilbank each bought 50,000 tonnes of bunker fuel oil for October arrival at premiums of $15-$20 per tonne and $10-$15 per tonne, respectively, above Singapore spot quotes, on a cost-and-freight (CFR) basis.

It is said to be the first time ever that S-Oil - a company that used to export its cargoes and that lowered its refinery run rate by five percentage points to 90 percent in September - has purchased a spot cargo of fuel oil.

South Korea has five refineries with a total refining capacity of approximately 2.55 million barrels per day (bpd). GS Caltex's Yeosu Refinery is the second-biggest in the country, whilst the largest is SK Energy's 850,000 bpd Ulsan Refinery.

The size of the South Korean bunker market is estimated to be in the region of 14 million metric tonnes per year with Busan taking around 8 million tonnes.

The market is currently dominated by its leading refiners SK Energy Co. Ltd., GS Caltex Corp., SK Incheon Oil Refinery Co. Ltd. (owned by SK Energy), S-Oil Corporation and Hyundai Oilbank Co. Ltd.

Annual bunker sales for S-Oil and Hyundai Oilbank are estimated at around 2.4 million tonnes and 1.8 million tonnes respectively.