[MarketING] Oil Refining Stocks Smiled at Russia's Production Cuts

KOSPI Closes Lower for 3 Consecutive Days
Oil Stocks Rally on Rising Oil Prices Due to Russian Production Cuts
Oil Price Increase Fuels Inflation Concerns

[Image source=Yonhap News]

[Asia Economy Reporter Song Hwajeong] The KOSPI closed lower for the third consecutive day, falling to the 2450 level. Ahead of the U.S. inflation data release, the market showed a sluggish trend amid cautious sentiment, while oil stocks rose due to the increase in international oil prices following Russia's production cuts.

KOSPI Falls Below 2460

On the 13th, the KOSPI closed at 2452.70, down 17.03 points (0.69%) from the previous session. The KOSDAQ ended the day at 772.55, up 0.11 points (0.01%).

Kim Seokhwan, a researcher at Mirae Asset Securities, said, "After the two major indices started off lower, the KOSDAQ turned to gains as foreign buying increased," adding, "Cautious sentiment ahead of this week's U.S. Consumer Price Index (CPI) and real economy data releases expanded, causing the KRW-USD exchange rate to surge by more than 10 won during the session."

Amid cautious sentiment, oil stocks showed strength. On the day, SK Innovation rose 1.08%, and S-Oil increased 1.16%.

This is interpreted as a result of rising international oil prices due to Russia's production cuts. On the 10th (local time), March delivery West Texas Intermediate (WTI) crude oil prices on the New York Mercantile Exchange closed at $79.72 per barrel, up $1.66 (2.13%) from the previous session. Russian Deputy Prime Minister Aleksandr Novak announced plans to cut oil production by 500,000 barrels per day starting in March as a retaliatory measure against sanctions from the European Union (EU) and the Group of Seven (G7). Kim Ilhyuk, a researcher at KB Securities, explained, "A daily cut of 500,000 barrels by Russia corresponds to about 5% of Russia's oil production and about 0.5% of global oil production," adding, "If OPEC+ (the Organization of the Petroleum Exporting Countries (OPEC) members and non-OPEC allies) does not fill this gap, it will have the same effect as OPEC+, including Russia, cutting 500,000 barrels."

On the New York Stock Exchange on the 10th, the energy sector, which benefited from the news of Russia's oil production cuts, rose 3.92%, recording the highest increase.

However, despite Russia's production cut measures, opinions are emerging that the possibility of short-term stabilization of energy prices is increasing. Yoon Jaesung, a researcher at Hana Securities, said, "Due to the stabilization of global gas and coal prices, panic buying of energy sources seen in the first half of last year is unlikely to occur despite Russia's oil production cuts and China's reopening (resumption of economic activities)."

Oil Price Rise Fuels Inflation Concerns

As inflation uncertainty expands again, the rise in oil prices is expected to act as a factor that fuels inflation concerns.

Park Minyoung, a researcher at Shinhan Investment Corp., said, "Russia's oil production cut plan stimulates inflationary caution," adding, "The disinflation path is retreating, and the base interest rate is more likely to be 'Higher and Longer'." He continued, "If the January CPI does not fall short of market expectations, pressure for interest rate hikes will continue."

Researcher Kim Ilhyuk explained, "Russia's strategy of weaponizing energy carries the risk of increasing inflationary pressure again," adding, "Although the demand for heating natural gas is decreasing as winter is almost over, Russia targeted the period when oil demand rises ahead of the U.S. driving season." He analyzed that if gasoline prices rise, consumption by low-income Americans, who have been holding on due to abundant jobs and have significantly depleted excess savings, could be hit.

Kim said, "The University of Michigan's one-year inflation expectations for February, released last week, rebounded, and short-term inflation expectations rose again as gasoline prices increased in January," adding, "Although it cannot be concluded that this is a trend reversal, it confirmed that the market's concern that the downward trend of inflation may not be as smooth as expected is not excessive."

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