Korean oil refiners to post weak Q1 earnings due to sluggish environment

[Courtesy of each company]

South Korean oil refiners are projected to post weaker-than-expected first-quarter earnings from a year ago as they are weighed down by sluggish oil demand and shrinking refining margins.

According to multiple sources from the refinery industry on Tuesday, the Singapore refining margin has been heading south since the beginning of April to plummet to the $3 range per barrel late last week, down from $6 per barrel in early April.

The Singapore refining margin averaged $8.2 per barrel in the first quarter and $7.3 in March.

A refining margin is the difference between the total value of petroleum products and crude oil prices and other operational costs spent by refineries. It is generally an indicator of a refinery’s profit, with the $4~$5 per barrel range considered to be break-even.

International oil prices have been on the rise since early April following further oil output cuts announced by OPEC+, a group of 23 oil-exporting countries, on April 2.

However, the downward trend in refining margins is on-going due to a sluggish recovery in demand. Refining margins only fall during high oil prices if global demand for petroleum products falls more than supply.

Korean refiners are bracing for poor year-on-year performance in the first quarter after robust earnings last year.

According to data from local financial data tracker FnGuide on Tuesday, SK innovation Co. is projected to post 334.2 billion won ($254.1 million) in operating profit for the first quarter, down 79.7 percent from the same period a year ago, on sales of 18.2 trillion won, up 11.9 percent.

S-Oil Corp. is also expected to post 587 billion won in operating profit, down 55.9 percent, on sales of 9.5 trillion won, up 2.01 percent, during the same period.

Non-listed refineries such as GS Caltex Corp. and HD Hyundai Oilbank Co. are likely to see a similar trend in performance.

There are industry concerns that refineries will continue to see weak earnings until the second quarter of this year. Three local refineries, except for HD Hyundai Oilbank, have been logging operating losses since the fourth quarter of last year due to worsened business environment.