The Oil Refining Industry Sighs Amid the Monsoon and COVID-19

Prolonged Monsoon Compared to Average Leads to Sluggish Petroleum Product Sales
Petroleum Demand Faces 'Red Light' Due to COVID-19 Resurgence
Operating Rate Normalization Hindered... Uncertain Q3 Outlook

[Image source=Yonhap News]

[Asia Economy Reporter Hwang Yoon-joo] The refining industry is on edge amid signs of a resurgence of the novel coronavirus disease (COVID-19). Contrary to expectations that oil demand would recover during the summer vacation period, the unusually long rainy season this year and the surge in COVID-19 cases have prevented an increase in refinery operating rates.

According to the refining industry on the 23rd, SK Innovation had planned to raise its operating rate to over 90%, but decided to maintain it at 80-85%, the same level as in the first quarter. Other refiners such as GS Caltex, S-OIL, and Hyundai Oilbank are also monitoring market conditions daily or weekly and responding flexibly.

Domestic consumption of gasoline, diesel, and jet fuel slightly increased from 6.47 million barrels, 12.98 million barrels, and 730,000 barrels respectively in April, when the COVID-19 crisis peaked, to 7.11 million barrels, 14.47 million barrels, and 1.7 million barrels in June. However, due to the prolonged rainy season, transportation fuel sales are reported to have decreased compared to last year. The average rainy season in South Korea lasts 32 days, but this year it continued for 49 days, the longest since 1973. Moreover, with the surge in COVID-19 cases, social distancing guidelines were raised to level 2, preventing the summer vacation demand boost.

The Singapore complex refining margin in the second week of August recorded $0.2, turning positive for the first time in five weeks. The refining industry views this as reflecting expectations of reduced supply, such as Royal Dutch Shell closing regional facilities. The International Energy Agency (IEA) forecasts that crude oil demand will decrease by 8.1 million barrels compared to last year, making a decline in petroleum product sales inevitable.

Accordingly, the outlook for the refining industry's third-quarter performance has become uncertain. During the second-quarter earnings conference calls, refiners anticipated a gradual improvement in demand from the second half of the year, but they are concerned that if social distancing measures intensify due to the COVID-19 resurgence, petroleum product sales will remain sluggish.

A refining industry official explained, "This year, we think there is 'no driving season.' We expected demand to recover from the summer vacation through Chuseok, but due to the longer-than-expected rainy season, oil demand decreased, and with social distancing raised to level 2, it is difficult to predict demand recovery."

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