Refinery Utilization Rate at 83.6%... Recovery to Pre-COVID Levels

Increased Demand and Margins Expected for European Transit in Winter
Production Boosted Compared to Export Volume
Record Refining Margins Amid High Oil Prices in H1
Decline in Operating Profit in H2 Seen as Natural Phenomenon

Asia Economy DB

[Asia Economy Reporter Choi Seoyoon] It has been revealed that the operating rates of crude oil refining facilities of domestic oil refiners have recovered to pre-COVID-19 levels. This is interpreted as a strategic move to increase production in preparation for the rise in diesel demand in overseas markets during the winter season and to respond to exports.

According to the Korea National Oil Corporation on the 31st, the average operating rate of the four refiners?SK Innovation, S-OIL, GS Caltex, Hyundai Oilbank?and crude oil companies such as SK Incheon Petrochem, Hanwha Total, and Hyundai Chemical reached 83.6% in July, marking the highest level in two and a half years. This nearly matches the level of January 2020 (83.78%), just before the COVID-19 pandemic. Compared to the previous month, it rose by 12.2 percentage points.

An official from the Korea Petroleum Association stated, "While global oil supply and demand remain unstable, diesel demand and margins in Europe are expected to increase as we approach the winter season," adding, "It appears to be a response to increase production and take an export position." In fact, diesel production in July set a record high.

However, despite the recovery in operating rates, it is difficult to guarantee robust profitability in the second half of the year. First, the refining margin, which determines the profitability of refiners, dropped to about one-third of the first half of the year in July. Concerns about economic recession and demand contraction are also burdensome. This contrasts with the peak boom experienced in the first half of the year due to high oil prices.

A representative from an oil refining company said, "Oil prices are falling in the second half due to recession concerns, and refining margins have sharply declined compared to the first half, so the performance of refiners in the second half is expected to decrease compared to the first half," adding, "However, diesel is expected to maintain higher-than-average margins due to limited supply caused by refining facility shortages despite the impact of the economic downturn."

Signs of a rebound are visible. Although refining margins are lower than in June, when they recorded $20 per barrel for five consecutive weeks, they have been gradually rising this month. From $6.6 in the first week of August, they increased to $12.6 in the fourth week of the same month. Refining margin is the figure obtained by subtracting raw material costs from petroleum product prices such as gasoline and diesel, with a break-even point considered at $4 per barrel.

Market analysis suggests that although not as high as in the first half, refiners will continue to post good results due to increased refining margins. Lee Jinho, a researcher at Mirae Asset Securities, analyzed, "Since inventory valuation gains were significant due to record-high refining margins in the first half, a decrease in operating profit in the second half compared to the first half is a natural phenomenon," and added, "I still believe that the physical market supply and demand is tight compared to petroleum product futures."

According to financial information provider FnGuide, SK Innovation's operating profit for the second half is expected to be 2.1241 trillion KRW, a 46.6% decrease from the first half (3.9783 trillion KRW), but it is 185% higher compared to the same period last year. S-OIL's operating profit for the second half is also estimated at 1.6796 trillion KRW, a 45% decrease from the first half but a 79% increase compared to the previous year.

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