Oil Refiners' Performance Recovery 'Red Light'... Saudi Arabia Raises Asian Crude Oil Selling Prices

Rising Crude Oil Prices Negatively Impact Refining Margins
Dubai Oil Prices Enter Downward Trend
"Significant Demand Rebound Unlikely"

Saudi Arabia's state-owned oil company Aramco has raised the official selling price (OSP) of crude oil exported to Asia for the first time in three months, signaling a red light for the recovery of domestic refiners' earnings.

According to Bloomberg on the 5th, Aramco set the September OSP for Asian customers at $2 per barrel, an increase of 20 cents. The OSP is a discount or premium added by oil-producing countries to the crude oil selling price, determined by continent based on international crude supply and market demand. Bloomberg analyzed, "This shows Saudi Arabia's confidence that oil demand in Asia will remain strong," adding, "It is a measure to prepare for increased demand in Asia, considering that Chinese consumption peaks in September and October."

However, this is expected to be negative news for the domestic refining industry. When crude oil prices rise, refiners who import crude, refine it, and sell the products inevitably see their profits decline. The refining margin, a key profitability indicator for refiners, recently fell to around $3 due to oversupply from China and India and weaker-than-expected demand. The refining margin is the figure after deducting transportation and operating costs from crude oil prices, with $5 generally considered the breakeven point.

An official from the Korea Petroleum Association explained, "Aramco bases its OSP on sales volume in the region, not on crude oil prices," adding, "Even if sales volume is high, low refining margins can negatively impact refiners' earnings."

The earnings deterioration caused by the decline in refining margins was evident in the second-quarter results. SK Innovation's petroleum business recorded an operating profit of 144.2 billion won, down 446.9 billion won from the previous quarter. The refining divisions of S-OIL and HD Hyundai Oilbank also turned to losses. Although refining margins slightly rebounded after July, they remain at around $4 to $5, barely avoiding losses.

Another negative factor is the recent decline in Dubai crude, which serves as the benchmark for imported crude prices. Dubai crude closed at $76.3 per barrel on the 2nd (local time). Despite escalating Middle East tensions, concerns over demand reduction due to economic recession have heavily influenced the market, causing Dubai crude, which had maintained the $85 range recently, to plunge to the $70 range since August. Since it takes about a month from importing and refining crude to selling products, a downward trend in crude prices is generally unfavorable for refiners.

An industry insider said, "Refining margins are influenced not only by crude prices but also significantly by demand," and assessed, "The weak demand ahead of this summer peak season is unlikely to improve meaningfully after August."

Amid such uncertainties, the refining industry is turning its attention to non-refining businesses. In particular, interest in Sustainable Aviation Fuel (SAF) is heating up. SAF, a bio-based aviation fuel that can reduce carbon emissions by more than 80-90% compared to conventional jet fuel, is expanding its market due to strengthened decarbonization regulations worldwide. S-OIL was the first domestic refiner to introduce bio-based raw materials into the refining process in January. HD Hyundai Oilbank recently became the first in Korea to export SAF. SK Innovation is building SAF facilities within its Ulsan Complex (CLX) aiming for production in 2026, and GS Caltex is constructing a plant in Kalimantan, Indonesia.

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