S-Oil, Record High 1Q Earnings... Sales 9.2 Trillion KRW, Operating Profit 1.3 Trillion KRW

Profitability Indicator Refined Margin Strengthens
"Likely to Remain Strong in Q2"

Hussein Al Qatani, CEO of S-OIL. (Photo by S-OIL)

[Asia Economy Reporter Moon Chaeseok] As the refining margin, a key profitability indicator for oil refiners, showed a strong surge, S-OIL recorded its highest-ever performance in the first quarter.

On the 27th, S-OIL announced that its consolidated preliminary sales for the first quarter increased by 73.8% year-on-year to 9.287 trillion KRW, operating profit rose by 111.7% to 1.332 trillion KRW, and net profit surged by 152.6% to 870.8 billion KRW. All three are the highest results ever recorded for the first quarter.

Sales were influenced by the rise in selling prices. As international oil prices increased, selling prices also rose. Operating profit and net profit were significantly impacted by a favorable market environment, including strong international refining margins and inventory-related gains of 562 billion KRW due to rising oil prices. The completion of the refinery and petrochemical complex facilities (RUC·ODC) led to an overall improvement in complex margins, which also had a positive effect.

According to the securities industry, the Asian complex refining margin in the fourth week of April was $18.67 per barrel, more than tripling from $5.9 at the beginning of the year. The refining margin is an indicator calculated by subtracting crude oil prices and transportation/operating costs from petroleum product prices such as gasoline, with a breakeven point generally considered to be $4-5 per barrel.

S-Oil's first quarter performance. (Data provided by S-Oil)

Amid an already rising refining margin, the supply shortage accelerated due to Russia's invasion of Ukraine, which contributed to the increase in S-OIL's refining performance. As global product inventories dropped to their lowest levels in years, prices surged due to reduced supply. Diesel spreads also soared. This was due to a strengthened fundamental situation caused by reduced exports from China, regional import demand, and historically low inventory levels in recent years, combined with a decrease in supply of Russian products and semi-finished products.

In petrochemicals, although the price of the raw material naphtha rose, sales of aromatic products increased due to higher polyester demand in spring. For lubricants base oil, steady performance was maintained by reducing facility operation due to seasonal demand, regular maintenance, and maximizing diesel production. Olefin products were affected by both positive factors such as the rise in propylene prices (raw material) and negative factors including demand decline due to new facility expansions early in the year and strengthened COVID-19 restrictions in China.

S-Oil's first quarter performance by business segment. (Source: S-Oil)

S-OIL expects the refining performance increase driven by strong refining margins to continue into the second quarter. It anticipates limited potential for a rapid increase in supply in the short term. The company believes there is a low likelihood of a sharp drop in refining margins due to external factors such as supply increases. Diesel spreads are also expected to remain strong for the time being amid ongoing geopolitical supply constraints. In the petrochemical sector, both aromatic and olefin product segments are expected to improve and recover.

Specifically, the strengthening of refining margins is expected to be driven not only by geopolitical supply disruptions but also by factors such as ▲declining operating rates of less competitive European refineries ▲global petroleum product inventory levels at multi-year lows ▲gradual recovery of jet fuel demand due to border reopenings ▲regional decline in petroleum product exports due to China’s national carbon emission reduction and energy efficiency improvement policies. Additionally, the global trend toward greenhouse gas reduction and energy transition, coupled with new refining facility investments failing to keep pace with demand growth for several years, is expected to further push refining margins upward. S-OIL believes that the increase in refining and petrochemical performance driven by strong refining margins will continue for the foreseeable future.

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