S-OIL's Q2 Loss Narrows to 164.3 Billion Won... H2 Performance Expected to Improve

1Q Deficit Down 83.7% from 1.073 Trillion Won
Lagging Effect of Rising International Oil Prices
Improved Performance Expected in Second Half

[Asia Economy Reporter Yoonju Hwang] S-OIL reduced its second-quarter deficit to around 160 billion KRW. This was due to a slight rebound in international oil prices in the second quarter after a sharp decline earlier this year, which significantly reduced inventory losses?the main cause of the first-quarter earnings shock. In the second half of the year, as demand for petroleum products gradually improves following the contraction caused by the COVID-19 pandemic, the refining industry, including S-OIL, is expected to see a recovery in performance.

S-OIL announced on the 24th that it recorded an operating loss of 164.38 billion KRW for the second quarter on a consolidated basis. Although the deficit was significantly reduced compared to the record loss exceeding 1 trillion KRW in the first quarter, the deficit widened compared to the same period last year (90.5 billion KRW loss). Sales decreased by 44.8% year-on-year to 3.4518 trillion KRW. Net loss narrowed to 66.9 billion KRW.

The main reason for the reduced deficit was the lagging effect caused by the rise in Dubai crude oil prices. The lagging effect refers to the increase in refining margins as product prices rise following an increase in international oil prices. In fact, the average price of Dubai crude rose from $33.8 in March to $40.2 in June. As a result, the operating loss in the refining sector decreased to 358.7 billion KRW.

Petrochemical performance also improved. Petrochemical operating profit increased from 66 billion KRW to 91.1 billion KRW. This was due to favorable performance driven by a decline in the price of naphtha, the raw material, and increased demand from China, which boosted the olefin-based PP spread. The lubricants segment also recorded the highest operating profit of 103.3 billion KRW, supported by low raw material prices.

Other refiners such as SK Innovation, GS Caltex, and Hyundai Oilbank are also expected to significantly reduce their second-quarter deficits compared to the first quarter. The securities industry estimates SK Innovation and GS Caltex’s operating losses to be in the range of 400 to 500 billion KRW. Hyundai Oilbank is expected to record a loss of less than 70 billion KRW.

The refining industry’s performance recovery is expected to begin in the third quarter. The refining margin, which was negative in the second quarter, has recently been hovering around zero dollars, and demand for petroleum products is gradually improving.

An industry insider said, "Unlike the first half of the year, which was directly hit by COVID-19, signs of recovery in oil demand are emerging, so a return to profitability in the refining sector is expected in the second half. However, it will likely take until next year for demand to recover to pre-COVID-19 levels."

This content was produced with the assistance of AI translation services.