S-Oil Posts Losses for Two Consecutive Quarters... Awaiting the Third Quarter

[Asia Economy Reporter Kum Bo-ryeong] It is analyzed that S-Oil, which recorded operating losses in both the first and second quarters, is expected to rebound in the third quarter.

According to S-Oil on the 27th, the second-quarter performance recorded sales of 3.4518 trillion won and an operating loss of 164.3 billion won. Compared to the previous year, sales decreased by 44.8%, and operating profit turned to a loss. Although the operating loss significantly decreased from 1 trillion won in the previous quarter due to the recovery of oil prices following the first-quarter international oil price crash shock, it failed to turn a profit due to crude oil inventory valuation losses caused by the decline in crude oil selling price (OSP).

As a result, the stock price has actually fallen further than a month and a half ago. On the 24th, S-Oil’s closing price was 61,700 won, whereas on the 8th of last month, it was 76,800 won. It dropped 19.66% in a month and a half.

The good news is that the possibility of turning a profit in the third quarter is high. Yuanta Securities forecast S-Oil’s third-quarter operating profit at 468.4 billion won. A significant turnaround to profitability is expected in the third quarter. The reasons cited are the effect of low-priced crude oil input in the third quarter and the reduction effect of Middle Eastern OSP.

Hwang Gyu-won, a researcher at Yuanta Securities, said, "At the beginning of this month, the average cost of crude oil inventory held by S-Oil is estimated to be in the low 30-dollar range. Considering the average selling price of petroleum products this month at 42 dollars and fixed costs of about 2 dollars, it is possible to generate an operating profit of 6 to 7 dollars per barrel of petroleum product sales volume." He added, "Even if the effect of low-priced crude oil input decreases in August and September, an operating profit of more than 300 billion won can be expected from the refining sector alone in the third quarter."

The effect of reducing Middle Eastern OSP in the third quarter is also valid. When domestic refiners purchase Middle Eastern crude oil, the purchase price is determined by 'Dubai oil price + alpha,' where alpha corresponds to OSP. Researcher Hwang said, "The average OSP applied to the crude oil introduced by S-Oil in the third quarter is about -2.4 dollars. Although it has decreased from the second quarter average of -3.1 dollars, the fact that it is still negative is significant." He explained, "For S-Oil, if the refining margin after deducting variable costs is around zero dollars, it means that profitability can be achieved purely from the refining sector without any lagging effect."

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