Rising oil prices, margins raise hopes of recovery in refiners' earnings
SEOUL, March 9 (Yonhap) — A recent jump in international oil prices and recovering refining margins are raising expectations for a rebound in South Korean oil refiners’ earnings down the road, industry sources said Tuesday.
Industry leader SK Innovation Co. and three other players registered their worst performances ever last year, stung by slumping crude prices, weak refining margins and tumbling demand due to the coronavirus pandemic.
In a boon to local refiners, however, international oil prices have been rising rapidly due to a recent decision by major oil-producing nations to raise output by a small margin and growing geopolitical risks in the Middle East.
Prices of Brent crude surpassed the US$70-per-barrel mark Monday for the first time since the novel coronavirus outbreak gripped the world.
In Asian markets, Brent crude futures for May delivery fetched $71.38 in early trade, the highest level since Jan. 8 last year.
This undated photo file shows oil-refining facilities in South Korea. (Yonhap)
Prices of Dubai crude, South Korea’s benchmark, finished at $66.37 per barrel Monday, up $3 from the previous session.
In addition, local refiners’ refining margins have been on the mend. Their refining margins came to $2.3, unchanged from the prior session. The key profit yardstick hovered below zero or remained in the $1 range last year before soaring to $2.8 in late February.
Refining margins are linked to international oil prices. Higher crude prices mean greater margins, or the difference between the total value of petroleum products and the cost of crude and related services.
Bolstered by those positive factors, the four oil refiners are widely expected to turn in a profit for the first quarter of this year after hemorrhaging last year.
SK Innovation is forecast to post an operating income of some 6 billion won for the January-March period, with S-Oil Corp. likely to chalk up 170 billion won in operating income.
GS-Caltex Corp. and Hyundai Oilbank Co. are also projected to swing to a profit in the current quarter.
But market watchers voiced skepticism over whether rising oil prices may improve their earnings over a long period of time. (YONHAP NEWS)