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Low bunker-C oil, or marine fuel, margins have prompted South Korea's GS Caltex to reduce its output of bunker-C in order to produce more premium oil products by 2013, Reuters reports.

The country's second largest refiner, which is owned 50 percent each by GS Holdings Corp and Chevron Corp, is set to invest almost $1 billion in its heavy oil upgrading facilities, GS Caltex said last week, as it aims to improve its product mix within the next two years.

Demand for bunker-C oil, which accounts for around 40 percent of crude processing output, has not picked up in South Korea as of late. This is in contrast to other oil products such as kerosene, diesel and gasoline, which have seen strong demand.

Margins and demand for kerosene are bullish due to the cold spell in Europe in addition to seasonal demand between the fourth and the first quarters, leading to higher crude processing rates globally. Demand and margins for diesel and gasoline have also been strong, helped by the global economic recovery.

Raising bunker-C oil output have reduced its crack, or margin against the price of crude. Over the last 12 months the crack has decreased to below a discount of $11 per barrel compared with a $3 discount a year earlier.

Bearish bunker-C margins are said to have led to GS Caltex's decision to reduce its crude run rate in January by 5,000-10,000 barrels per day compared to the previous month. In total, the refiner is set to process 700,000-705,000 barrels per day this month.