Korean refiners see record demand for gasoline

[Photo by Yonhap]

South Korea’s gasoline market in 2024 is at its largest scale since statistics began to be compiled in 1986, with production, domestic demand, and exports all at record highs.

However, refining margins, or the profit oil refiners make from producing and selling gasoline, are half of what they were in the previous quarter. This is due to a low-cost offensive from Chinese and Indian oil companies using Russian crude oil, whose imports are subject to sanctions from major countries, including Korea. As a result, the second-quarter performance of Korean refiners is expected to deteriorate compared to the first quarter.

According to the Korea Petroleum Association on Tuesday, the Korean refining industry’s gasoline production, domestic demand, and exports in the first five months of 2024 stood at 79.03 million barrels, 37.77 million barrels, and 50.35 million barrels respectively, up 6.6 percent to 27.1 percent from the same period a year ago.

The annual gasoline production, domestic demand, and exports in 2023 were 173.78 million barrels, 90.36 million barrels, and 120 million barrels respectively, the highest on record. These three indicators have been increasing every year since 2020, and this development is attributed to the temporary stagnation in demand for electric vehicles.

Gasoline is a major business accounting for up to 20 percent of Korean oil companies’ company sales. For SK energy Co., the refining arm of SK innovation Co., gasoline sales in the first quarter amounted to 2.29 trillion won ($1.66 billion), or 20 percent of the total. S-Oil Corp.‘s gasoline sales were 1.71 trillion won, or 18.4 percent of the total, while those of GS Caltex Corp. were 1.50 trillion won, or 12.7 percent, and HD Hyundai Oilbank Co. 1.29 trillion won, or 16 percent, during the same period.

However, gasoline refining margins plummeted during the same period compared to the beginning of the year. The margin was $11.7 per barrel as of the second week of July, down 41.8 percent from the peak of $20.1 per barrel in the second week of February 2024. It was only $7.8 per barrel in the last week of May, the lowest in 2024 to date. Although there has been a gradual recovery since then, it is still half the peak level.

The industry attributes the decline in refining margins to the Russia-Ukraine war, with Chinese and Indian refiners importing cheaper crude from Russia, which is facing economic sanctions from the West. According to recent foreign media reports, Chinese and Indian refiners are buying Russian crude at a price of around $60 per barrel, which is expected to reduce raw material costs by more than 20 percent.

With refining margins shrinking, the second-quarter performance estimates for Korean refiners are bleak. The average forecast for S-Oil’s second-quarter sales and operating profit by securities firms is 9.58 trillion won and 190.3 billion won respectively. Sales are expected to increase by 2.9 percent compared to the previous quarter but operating profit is expected to decrease by 58 percent, amounting to a decline in performance amid a boom.