Refining Margins Hit by COVID-19... When Will They Rebound?

[Asia Economy Reporter Hyunseok Yoo] As international oil prices have fallen to the $20 range, there are forecasts that refining margins could rebound in the second half of this year.

On the 29th, Jinmyung Lee, a researcher at Shinhan Financial Investment, analyzed, "A rebound in refining margins is expected from the second half of this year."

He explained, "When the COVID-19 pandemic subsides, oil demand will recover," adding, "Saudi Arabia and Russia are likely to renegotiate due to increased economic burdens." He emphasized, "With natural production cuts by U.S. shale companies added, oil prices are expected to rise from the second half."

He noted, "Since March, the COVID-19 situation in China has entered a calming phase, and the operating rates of refining and chemical plants are recovering," and explained, "The issue lies outside China, but due to active lockdowns and restrictions by various countries, industrial activities are expected to normalize after June."

Especially as international oil prices are expected to rise in the second half, the researcher stressed the need to increase the weighting of refining and chemical industries. He said, "The refining sector is expected to see a rebound in refining margins due to normalization of oil demand in the second half, the IMO effect, and rising oil prices," emphasizing, "The mid- to long-term weakness of OSP is a great boon for domestic refiners with a high proportion of Middle Eastern crude oil imports." He added, "Although concerns about demand slowdown are expanding as COVID-19 spreads from China to advanced countries, the negative factors have already been reflected in stock prices, and it is time to focus on performance improvements in the second half."

He said, "The chemical sector continues to experience market weakness due to demand slowdown and oversupply caused by COVID-19," but added, "Nevertheless, companies with growth momentum through new business ventures and expansion of high value-added materials can withstand the poor performance of existing businesses."