Between Russian Withdrawal and US Inflation Fears... Deepening Profit Concerns in the Refining Industry

Singapore Complex Refining Margin
Firm at $8.4 per Barrel
Profit Indicator Refining Margin Volatile
International Oil Price Outlook Uncertain

[Asia Economy Reporter Jeong Dong-hoon] As the global economy and geopolitical landscape have been rapidly changing recently, the refining industry, which is exposed to external environments, is increasingly concerned about its performance in the second half of the year.

According to the refining and securities industries on the 16th, the Singapore complex refining margin in the first week of this month was around $8.4 per barrel. After the Singapore complex refining margin fell to single digits again, recording $6.09 per barrel in the last week of August, down $6.51 from the previous week ($12.6), it has maintained a firm level.

This year, the refining margin, a key indicator of refiners' profits, has been volatile. Refiners import crude oil, refine it, and sell it as gasoline, diesel, etc. The refining margin refers to the margin obtained by subtracting raw material costs, including crude oil, from the final petroleum product price.

Following the Russia-Ukraine war, the crude oil supply shortage intensified, causing the refining margin, which averaged $6.01 per barrel in January, to rise to $24.51 in June. However, after peaking in June, the refining margin sharply declined. This was due to a rapid increase in gasoline inventories in Asia and Europe and growing concerns about a global demand slowdown. In the third week of July, it plummeted to $3.9. Typically, a refining margin of $4 to $5 is considered the profit breakeven point. After recording an all-time high refining margin, it fell to the breakeven point. Although the refining margin rose to around $9 in July and last month, it is difficult to guarantee a strong trend in the second half of the year.

In particular, refiners are facing unprecedented uncertainty in the second half of this year. Thanks to high crude oil prices and strong refining margins following the Russia-Ukraine war, refiners posted record-breaking results in the first half of the year. However, the international situation is entering a new phase in the second half.

In the Russia-Ukraine war, Ukraine has recently regained control of the northeastern Kharkiv region, gaining an advantageous position. Consequently, there is growing public opinion within Russia advocating for negotiations to end the war. Additionally, with no sign of inflation easing in the United States, concerns about a global demand slowdown are increasing. The energy crisis caused by the war, which had benefited some parts of the refining industry, is now compounded by a global economic downturn, creating a "double whammy."

The outlook for international oil prices in the second half is also uncertain. Factors driving prices up and down are intertwined, making it difficult to predict the direction. Dubai crude, the benchmark for Middle Eastern crude oil prices, surged to $127.9 per barrel in March, immediately after Russia's invasion of Ukraine, but has recently fluctuated around the $90 range.

Jeong Yu-jin, a researcher at Hi Investment & Securities, said, "The refining margin, which had recently shown a strong rebound centered on gasoline and diesel, has been sharply adjusted downward. This is judged to be due to weak demand as the driving season ended and gasoline inventories across the US, Asia, and Europe are at historically high levels, resulting in an overall weak market."

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