(Adds government comment in para 12-14)
By Angela Moon
SEOUL, Oct 28 (Reuters) - South Korea's state-owned Korea National Oil Corp (KNOC) has offered to loan local refiners as much as a tenth of its crude oil reserves in an 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 on 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 document from KNOC obtained by Reuters showed.
A source close to the matter said the offer was made to try 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 stabilise 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 the $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 said.
South Korea's energy ministry said the document was an internal memo by KNOC, only floated internally in the agency.
"Neither the Ministry of Knowledge Economy (energy ministry) nor the Korean government had anything to do with this document," it said in a statement.
"Strategic oil reserves can only be used in dire circumstances... The Korean government stresses we have never considered using strategic oil reserves to soften the impact of a deepening global financial crisis."
RESERVED RESERVES
Major industrialised nations built up over 1.5 billion barrels in emergency crude oil reserves after the Arab oil embargo of the 1970s, to improve energy security. 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 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, 3.06 million barrels to GS Caltex and 1.65 million to Hyundai Oilbank, the document showed.
Second-biggest refiner GS Caltex has agreed to buy the state crude, although it was not clear how much, another industry source close to the matter said.
The source said SK Energy, the largest refiner, did not take the offer as it has secured sufficient supply until December. It was not immediately known whether Hyundai had taken up the offer. The third-largest, S-Oil, was not offered the oil as the refiner only takes term volumes.
The crude is supposed to be repaid within 30 days, the document 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).
South Korea's won, one of the world's worst-performing currencies this year, has tumbled nearly a third in three months to a more than 10-year low, hit by worsening trade data and 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 favourable 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 around 4,000 won ($2.69) per barrel, according to Reuters calculations on the data.
South Korea secures 60 percent of its monthly crude oil imports -- an average of 73 million barrels per month -- in term volumes. The rest is from the spot market, KNOC data shows. (Additional reporting by Miyoung Kim, editing by Anthony Barker) (Reporting by Angela Moon; Editing by Jonathan Leff and Anthony Barker)