[Click eStock] Growing Optimism for the Refining Industry

[Image source=Yonhap News]

[Asia Economy Reporter Junho Hwang] It is forecasted that the annual performance estimates of South Korean oil refining companies will rise from this month through next month.

On the 13th, Jaesung Yoon, a researcher at Hana Financial Investment, presented the 'Reasons to Pay Attention to the Oil Refining Industry from June to July' in a Weekly Monitor report.

First, as China lifts city lockdowns due to COVID-19, net exports of petroleum products are expected to sharply decline. China's petroleum product export quotas are also expected to decrease this year. Considering the shortage of petroleum product supply within China and decarbonization pressures, it is unlikely that export quotas will significantly expand in the second half of the year.

Starting this month, the U.S. hurricane season begins, and supply and demand conditions in the U.S. are expected to become more challenging. Earlier this month, Colorado State University raised its hurricane forecast for the U.S. hurricane season, mentioning that there is over a 50% probability of one or more major hurricanes occurring. The National Oceanic and Atmospheric Administration (NOAA) also predicted that this year will be the 7th year with above-average hurricanes. Considering the current U.S. refinery utilization rate of 94.2% and low inventories, if crude oil and refinery facilities are damaged during the hurricane season, the impact is expected to be even greater.

Currently, adjustments in refinery yields to alleviate petroleum product supply shortages are leading to a sharp increase in margins for lubricants and BTX/PX. This situation is expected to be reflected in refinery companies' performance starting this month.

By the end of this year, the European Union (EU) will implement a ban on Russian crude oil imports and an energy rationing system in Europe. Although the ban will be enforced around the end of the year, six months later, the relevant facilities are likely to maintain low utilization rates beforehand due to efforts to procure alternative crude oil. The combined CDU capacity of these facilities is 1.51 million b/d, about 1.5% of the global total. If the energy rationing system is implemented, there is a high possibility that industrial energy supply will be disrupted.

Researcher Yoon stated, "Current performance estimates for domestic oil refining companies do not reflect these market conditions at all," and added, "From June to July, a strong upward revision of annual estimates is expected."

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