[Asia Economy Reporter Hwang Yoon-joo] The refining margin, which indicates the profitability of oil refiners, has recorded a negative value for eight consecutive weeks. In particular, the refining margin in the first week of this month plummeted below '-3 dollars'.
According to the Korea National Oil Corporation and the refining industry on the 11th, the average Singapore complex refining margin for the first week of May recorded -3.3 dollars per barrel. It has been negative for eight consecutive weeks since the third week of March. The refining margin showed -1.9 dollars in the third week of March, -1.1 dollars (fourth week of March), -1.4 dollars (first week of April), -0.7 dollars (second week of April), -0.1 dollars (third week of April), -0.9 dollars (fourth week of April), and -0.9 dollars (fifth week of April).
Despite the recent rise in international oil prices, such as West Texas Intermediate (WTI) crude oil for June delivery closing at 24.74 dollars per barrel, up 5.1% from the previous trading day on the 8th (local time), the negative margin widened due to a decrease in demand for petroleum products.
As the COVID-19 pandemic prolongs, not only domestic but also global demand has decreased, causing a significant impact on petroleum product exports. According to the Korea Customs Service, export value from the 1st to the 10th of this month was 6.9 billion dollars, down 46.3% (5.96 billion dollars) compared to the same period last year. By item, crude oil exports plummeted by 73.8%. Machinery (-19.9%) and semiconductors (-18.6%) also fell by double digits or more.
The worsening COVID-19 situation in major export countries such as the United States is also a concern. Exports to major partners shrank simultaneously: the United States (-54.8%), the European Union (-50.2%), Japan (-48.4%), and China (-29.4%).
In response, refiners have taken self-help measures such as reducing operating rates and advancing scheduled maintenance in the second quarter. SK Innovation stated in its first-quarter earnings announcement, "Considering the sharp decline in demand due to COVID-19, we plan to reduce production by 250,000 barrels in the second quarter compared to the first quarter by entering scheduled maintenance." GS Caltex started scheduled maintenance somewhat earlier from March, and S-Oil also began its planned maintenance.
The issue is whether demand will rebound. Although oil-producing countries including OPEC and Russia agreed to cut crude oil production starting this month, international oil prices still remain below 30 dollars per barrel. This paradoxically highlights that even if oversupply is resolved, the recovery of petroleum product demand is ultimately crucial.
An industry official said, "The demand recovery in May and the rebound in international oil prices must not be temporary," adding, "If economic activities in advanced countries such as the United States and Europe are delayed, the difficult situation will continue in the first half of the year."
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