Oil Prices Soar...Bright Outlook for Refining Stocks

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Park Jihwan] As international oil prices continue to soar, stocks in the refining sector are showing a concurrent strong performance. The securities industry expects that the trend of improving earnings for refining stocks will continue in the second half of the year, given the high likelihood of further increases in international oil prices.

According to the Korea Exchange on the 14th, S-Oil's stock price rose 16% from May through the 11th. The stock price, which was in the 70,000 KRW range at the beginning of the year, settled at the 100,000 KRW level this month. This is the first time since November 2019 that S-Oil has reached 100,000 KRW based on the closing price. GS, classified as a refining stock due to its stake in GS Caltex, also rose 9.9% since last month. Its year-to-date increase is 26%. Other refining-related stocks such as Heungkuk Petroleum (7.4%) and E1 (29.8%) have also risen consecutively since the end of May.

The recent rise in refining companies' stock prices is due to international oil prices reaching their highest levels in over two years and continuing their upward trajectory. On the 11th (local time), West Texas Intermediate (WTI) crude oil closed at $70.91, up 0.62% from the previous trading day on the New York Mercantile Exchange. Since breaking the $70 mark on the 8th, the highest level since October 2018, the price has maintained its upward momentum.

The rise in international oil prices leads to improved earnings for refiners. The prices of petroleum products, which directly affect sales, increase, and inventory valuation gains grow due to the rising value of crude oil purchased in advance. As oil prices surge, the earnings outlook for the refining sector has shifted dramatically from last year's record losses to the opposite trend. S-Oil is expected to post an operating profit of 1.9991 trillion KRW this year, reversing last year's loss of 1.0991 trillion KRW. GS Caltex, a GS subsidiary, is projected to have an operating profit of approximately 1.6645 trillion KRW this year, up from a loss of 919.2 billion KRW last year.

Experts believe there is still ample room for further stock price increases despite the already risen levels. Although international oil prices have reached their highest levels in several years, global crude oil demand is experiencing explosive growth, suggesting that tight supply and demand conditions will persist. The analysis anticipates continued oil price increases and additional earnings improvements in the second half of the year. Target prices are also being raised. Samsung Securities raised the target price for S-Oil from 106,000 KRW to 120,000 KRW, and KTB Investment & Securities increased it from 110,000 KRW to 130,000 KRW. Eugene Investment & Securities announced it would raise the target price for GS from 35,000 KRW to 65,000 KRW, reflecting earnings improvements centered on GS Caltex.

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