Refiners’ margins are bouncing back: analysts

Home > Business > Industry

print dictionary print

Refiners’ margins are bouncing back: analysts

The second quarter has been rough for oil refiners due to sluggish oil prices including the nation’s largest, SK Innovation. But analysts expect a bouncing back when oil prices rebound during the latter half.

“Sluggish second quarter results are a temporary event caused by a drop in international oil prices,” said Hwang You-sik, a research fellow at NH Investment & Securities. “Refining margins are showing a gradual recovery entering the third quarter, which will translate into improvement in profitability for refiners.”

Prices for Dubai crude fell by 9.5 percent from an average $51.20 per barrel in March to $46.30 in June, the last month of the second quarter. That kind of price drop undervalued inventory held by oil refiners and also ate into refining margins.

Lee Do-yeon, an analyst at Korea Investment & Securities, projected 526.3 billion won in operating profits for SK Innovation in the second quarter, a 48 percent drop quarter on quarter. According to Lee, competitor S-Oil may see a 48 percent drop in operating profits and GS Caltex a 38 percent drop compared to the previous quarter, which was a good quarter for refiners. Official announcements of second quarter results are scheduled at the end of this month.

Other researchers also projected falls of about 50 percent in profits for major refiners in the country.

“However, performances will see a recovery if no such oil price drops take place in the latter half,” Hwang added.

Citigroup’s senior energy analyst Eric Lee said last week that crude oil prices could jump to $60 a barrel by the year’s end thanks to growing demand and lower OPEC supply in an interview with Barron’s.

According to projections from Lee, global crude oil demand will reach 97.3 million barrels per day, up from an average of 96 million barrels a day last year. At the same time, Lee expects OPEC will produce at an average of 700,000 barrels per day less throughout the year compared to 2016.

The Paris-based intergovernmental organization International Energy Agency and the U.S. Energy Information Administration have also forecast demand for oil will rise this year while supply is limited.

Refining margins are getting more favorable as well. According to data from SK Innovation, a refining margin that hovered around the $6 level per barrel until recently recovered to over $7 from the first week of July.

“Considering the break-even refining margin is around $4 to $5 per barrel, recovery in margins can be a starting point for an overall recovery,” a spokesperson from SK Innovation said.

Log in to Twitter or Facebook account to connect
with the Korea JoongAng Daily
help-image Social comment?
lock icon

To write comments, please log in to one of the accounts.

Standards Board Policy (0/250자)