Refining Big Four's Profits Increase by 4 Trillion Won in Q1 Alone

On November 5th, fuel price information was posted in front of a gas station in downtown Seoul. According to the Korea National Oil Corporation's fuel price information service 'Opinet,' the average retail price of gasoline nationwide was 1,729.02 KRW per liter, marking a decline for the fourth consecutive week.
[Photo by Yonhap News]

Four domestic oil refining companies overcame operating losses worth several hundred billion won in the previous quarter and recorded strong performance with operating profits increasing by more than 4 trillion won in the third quarter.

Four Oil Refiners Increase Operating Profit by 4 Trillion Won in One Quarter

The combined operating profit of the four oil refiners?SK Innovation, GS Caltex, S-Oil, and HD Hyundai Oilbank?in the third quarter was 2.9969 trillion won. Compared to the previous quarter, which recorded operating losses exceeding 1 trillion won, operating profit rose by about 4 trillion won, and compared to the third quarter of last year (1.3521 trillion won), profits more than doubled (121.6% increase). Looking at each company's refining segment profits, SK Innovation recorded 1.1125 trillion won, GS Caltex 956.2 billion won, S-Oil 666.2 billion won, and HD Hyundai Oilbank 262 billion won. HD Hyundai Oilbank, which conducted scheduled maintenance throughout August, saw a somewhat smaller increase in operating profit.

The reason the refining industry experienced a rollercoaster within one quarter is refining margins. Refining margin is the amount left after subtracting costs from petroleum product prices. It is one of the key profitability indicators for refiners. Typically, a refining margin of 4 to 5 dollars is the breakeven point. International refining margins were below breakeven at 2 to 5 dollars during the second quarter (April to June) this year but began to rebound from July, averaging around 9.5 dollars in the third quarter. Reduced crude oil production from Saudi Arabia, Russia, and others led to tight supply conditions, and improved demand for kerosene and diesel affected refining margins. The OPEC Plus (+), consisting of the Organization of the Petroleum Exporting Countries (OPEC) and other oil-producing countries including Russia, implemented production cuts, causing crude oil prices and refining margins to rise together. GS Caltex, which announced its earnings on the 8th, stated, "Sales and operating profit increased compared to the previous quarter due to rising international oil prices amid tight supply conditions and improved refining margins." It added, "While petrochemical segment profits improved due to continued gasoline blending demand compared to the previous quarter, lubricant segment profits declined due to seasonal off-season and strong oil prices."

Diverging Fourth Quarter Outlook... Refining Margins Declining

The refining industry expects strong performance in the fourth quarter as well. Demand for heating oil is expected to increase with the onset of winter, boosting demand for petroleum products. Additionally, there are forecasts that international oil prices will continue their high-level rally as OPEC+ maintains production cuts.

Regarding the fourth quarter outlook for the petroleum business, SK Innovation stated, "Despite concerns over the U.S. Federal Reserve's continued high interest rate policy and demand contraction, strong market conditions may be maintained due to increased winter stockpiling demand and supply-demand imbalances from recovering demand in China." S-Oil also forecasted favorable results for the refining segment in the fourth quarter, citing strong refining margins, increased winter heating oil demand, and improved spreads for kerosene and jet fuel. During the third quarter earnings conference call, Hyundai Oilbank said, "The effects of oil prices and exchange rates may not be as significant in the fourth quarter as in the third quarter," but added, "While operating rates were around 60% in the third quarter due to scheduled maintenance, they could reach 80 to 90% in the fourth quarter, maximizing the operation of the upgrading process."

The impact of the Israel-Palestine conflict on crude oil supply is expected to be limited. Domestic refiners import crude oil from the Persian Gulf coast countries such as the United Arab Emirates (UAE) and Kuwait, not from areas near Israel. Jinmyung Lee, a researcher at Shinhan Investment Corp., forecasted, "International oil prices are expected to remain high due to tight supply," and "Refining margins will face upward pressure again due to low inventories, strong winter demand for kerosene and diesel, and robust jet fuel demand."

However, the decline in international oil prices and refining margins is a cause for concern. Global economic growth expectations are low, and outlooks for oil demand are not optimistic, leading to a downward trend in oil prices. The refining margin, which had the greatest impact on the recent performance of the four refiners and maintained a maximum of 15 dollars and an average of 10 dollars in the third quarter, has been declining in the fourth quarter. Last month, the Singapore complex refining margin averaged about 3.9 dollars. The direct cause of the refining margin drop is the global demand slowdown. Although refining margins were high due to sharply rising oil prices, global demand also sharply decreased due to the price surge. The Russian government lifted its export ban on the 6th, releasing a large volume of Russian diesel into the market. Diesel margins, which had been higher than gasoline margins, are deteriorating.

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