S. Korea's refining stocks gain traction on rebounding global oil prices

[Photo provided by SK Innovation Co.]

South Korea’s refining stocks that were heavily battered in pandemic-ridden year are postured for a strong rebound this year amid anticipated recovery in global oil prices.

Shares of S-Oil Corp. gained 1.76 percent to close at 75,000 won ($69.02) on Thursday, while SK Innovation finished 2.33 percent higher at 263,000 won. Those of GS Holdings, the parent of the country’s another major refiner GS Caltex Corp., rose 3.13 percent to 39,500 won.

The refining stocks have gone on an upward swing after Saudi Arabia at the OPEC Plus meeting held on Tuesday announced a decision to cut an additional 1 million barrels a day of oil production in February and March above its current quota. Upon the news, the West Texas Intermediate (WTI) for February delivery finished up 4.9 percent at $49.9 a barrel at the New York Mercantile Exchange. It even topped $50 during intraday trading, its first break since February last year.

The recovery of global oil prices is expected to help improve Korean oil refiners’ bottom line.

The refining margin still hovers below the break-even point but the rising oil prices is boding well for refiners’ profit, said Han Sang-won, a Daishin Securities analyst.

S-Oil is expected to return to the black as big improvement is anticipated in profit from chemical business as well, said Han.

SK Innovation has gained a boost from the electric vehicle battery business on top of its refining unit’s recovery. The news that it has begun building the second EV battery factory in the U.S on growing orders also spurred investors’ appetite for the stock.

GS Caltex is anticipated to see improvement in its earnings after it already made a big adjustment in inventory in the third quarter last year, according to Kim Hyun-tae, a BNK Securities analyst.

Industry watchers in general are optimistic about refiners’ outlook as they project the global oil prices to continue upward momentum after the first quarter. Oil producing countries are expected to take additional steps for the market’s stability as the prolonged Covid-19 presses on the global oil demand, said Hwang Sung-hyun of Eugene Investment & Securities.

Citing signs of recovery in refining business, securities firms are revising up their earnings estimates for the local refiners.

Market watchers project S-Oil to earn 729.3 billion won profits from operation this year. The firm is expected to have recorded operating losses of over 1 trillion won for full 2020.

SK Innovation, which reported 2.4 trillion won in operating loss for 2020, is also anticipated to show a sharp turnaround with 605.1 billion won profit this year.

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