Why Korea's Four Major Refiners Remain Cautious Despite Strong Q1 Results from the 'Middle East Effect'

S-Oil Posts 1.2 Trillion Won Q1 Operating Profit
Other Refiners Also Expected to See Improved Results
Inventory Valuation Gains from Soaring Oil Prices
Potential for Inventory Valuation Losses in Q2
Concerns Grow Over Public Perception That Only Refiners Benefit

Korean refiners are set to announce their first-quarter results this week. While performance improvements are expected due to rising petroleum product prices following the Middle East war, the industry is not highlighting these gains. With public discontent mounting over rising domestic fuel prices and ongoing discussions about government compensation for losses under the petroleum price ceiling system, refiners are finding it difficult to publicly emphasize their improved performance.

According to the industry on May 13, the four major Korean refiners—SK Innovation (SK Energy), GS Caltex, HD Hyundai Oilbank, and S-Oil—are scheduled to announce their first-quarter results in succession. With most expected to post "earnings surprises," S-Oil was the first to release its numbers.

S-Oil announced on May 11 that "although regular facility maintenance and the implementation of the petroleum price ceiling system partially offset refining margins, profits in the refining division improved quarter-on-quarter due to the lagging effect." S-Oil's first-quarter 2026 operating profit was 1.2311 trillion won, swinging to a profit from a loss in the same period last year. Revenue for the same period was 8.9427 trillion won, down 0.5 percent year-on-year. S-Oil also forecast that in the second quarter, the positive impact from rising petroleum product prices would outweigh any demand slowdown caused by high oil prices.

The other major refiners are also set to announce their first-quarter results soon. SK Innovation and GS Caltex, which are scheduled to announce earnings on the same day, are expected to post robust results. SK Innovation is forecast to report an operating profit of around 2 trillion won, while GS Caltex is expected to record operating profit in the mid-1 trillion won range. HD Hyundai Oilbank is also projected to post operating profit in the 200 billion won range.

The improvement in first-quarter results was driven primarily by inventory valuation gains from the sharp rise in oil prices. This is because products made from crude oil purchased at lower prices were sold at higher prices after the oil price surge. S-Oil analyzed that more than half of its operating profit—643.4 billion won—was attributable to the lagging effect of rising international oil prices. In fact, monthly operating profit surged from 176.6 billion won in January and 242.4 billion won in February to 812.2 billion won in March, when the Middle East war intensified.

However, industry sentiment remains cautious. Despite the improved results, there are concerns about possible inventory valuation losses in the second quarter if oil prices fall. If the war ends and international oil prices decline, refiners may be forced to sell products made from expensive crude at lower prices.

An official at a refining company cited the sharp drop in operating profit after the Russia-Ukraine war in 2023, stressing that "the strong performance in the first quarter is merely a temporary result driven by inventory gains." The official added, "If oil prices fall due to the end of the war, inventory valuation losses will occur, which will be directly reflected in the second-quarter results, accelerating the deterioration of profitability."

Announcing operating profits in the trillion-won range at a time when discussions on government compensation for losses under the petroleum price ceiling system are in full swing is also burdensome. An industry official said, "There are concerns that public sentiment will turn against refiners, portraying them as making huge profits while ordinary people struggle with 'fuel price bombs.' In a situation where the government and the industry are using different standards to calculate losses, it may not be easy for refiners to actively present their position."