'Burning Oil Prices'... Refining and Energy Stocks Soar

International Oil Prices Reach Highest in 7 Months
SK Innovation and S-Oil Surge
Rise of About 45% and 28% in One Month

[Asia Economy Reporter Minji Lee] As international oil prices hit their highest level in seven months, stocks of refining and energy-related companies are also on the rise. Expectations for the commercialization of the COVID-19 vaccine have increased, raising hopes that crude oil demand, which had been subdued due to delayed stimulus agreements, may recover.

According to the financial investment industry on the 7th, as the crude oil rally continues, refining and energy-related stocks in the domestic market are also showing an upward trend. The stock with the largest increase over the past month was SK Innovation. As of 9:30 a.m. that day, SK Innovation was trading at 178,500 KRW, which is about a 45% surge compared to the stock price on the 2nd of last month.

S-Oil rose 28% over the month, Hyundai Heavy Industries Holdings, which reflects Hyundai Oilbank’s performance, increased by 24%, and GS, reflecting GS Caltex’s performance, rose 10%. Lotte Chemical also jumped 17% during the same period. Judging by performance alone, like global refining companies, domestic firms have not yet escaped the impact of COVID-19. The Singapore complex refining margin, which can be used to infer domestic refiners’ refining margins, still remains below the break-even point (BEP) of $5 to $6 per barrel. However, expectations for earnings improvement due to increased economic activity have been priced into the stock prices, resulting in a significant upward trend.

West Texas Intermediate (WTI) crude oil traded on the New York Mercantile Exchange reached its highest level in seven months after a sharp decline in April due to the spread of COVID-19. As of the 4th (local time), WTI for January delivery next year surged to $46.26, rising about 20% from the high 30s to $46 over the past month.

This is interpreted as reflecting positive developments in COVID-19 vaccine development and the possibility of additional stimulus agreements in the U.S. Congress. Starting with the UK, the U.S. is expected to grant emergency use authorization for vaccines around the 10th. With increased expectations for large-scale stimulus passage due to weak employment data in November, crude oil demand is expected to further increase due to increased economic activity. Kwangrae Kim, a researcher at Samsung Futures, said, "Recently, Saudi Arabia and others have strongly insisted that the Biden administration in the U.S. must pursue a nuclear agreement beyond previous levels regarding Iran’s nuclear development," adding, "The fact that they are restraining Iran’s crude oil production and exports is a factor supporting the rise in oil prices."

Oil prices are expected to show a gradual upward trend next year as well. Prices are expected to recover to the $50 range at most. Despite the production increase decision by OPEC+ (the Organization of the Petroleum Exporting Countries (OPEC) and a coalition of 10 non-member countries including Russia) at the beginning of this month, oil prices were not significantly affected. Contrary to market expectations, production cuts were adjusted from an average of 7.7 million barrels per day to 7.2 million barrels per day, but this was insufficient to exert downward pressure on oil prices.

No Woo-ho, a researcher at Meritz Securities, explained, "Given the high likelihood that upward pressure on oil prices will develop rapidly during the normalization of COVID-19 demand, the average price of WTI next year is expected to be $48 per barrel," adding, "As refining margins are expected to rebound with the oil price recovery and profitability improvement, it is necessary to increase the weighting of the refining sector."

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