[Click eStock] "S-Oil, Clear Refining Margin Improvement... Bottom Buying Zone"

[Asia Economy Reporter Park Ji-hwan] Hana Financial Investment evaluated on the 8th that S-Oil appears to be in a low-price buying zone due to the recent clear improvement in refining margins, indicating a high potential for stock price increase.

Saudi state-owned oil company Aramco lowered its Official Selling Price (OSP) for October by $1.3 per barrel compared to September. This is the first OSP reduction in four months and the largest decrease in a year. The reduction significantly exceeded market expectations of $0.2 to $0.4 per barrel.

Yoon Jae-sung, a researcher at Hana Financial Investment, said, "The important factor is the direction of the OSP," adding, "Since OPEC Plus decided to reduce the production cut scale by 400,000 b/d each month starting from August, the direction of the OSP is likely to gradually trend downward."

The possibility of resolving Asia's supply glut due to China's refining industry regulations is also positive. Chinese Premier Li Keqiang recently mentioned at an energy forum that under the carbon neutrality goal, production scale control will be implemented for energy-intensive and carbon-overemitting industries. There are raised possibilities of crude oil import quota reductions and mid-to-long-term restructuring for Chinese Teapots, and export quotas for state-owned companies have also been announced to be cut by 30% compared to the previous year.

Above all, attention is advised on the refining margins, which are hitting their highest levels of the year. The U.S. refinery utilization rate has risen to 92%, which is very high, and inventories are below the past six-year average. European petroleum product inventories, which rely on imports from the U.S., are also below the six-year band.

Researcher Yoon Jae-sung said, "Supply and demand in regions with high vaccination rates and normalized economic activities have become very tight."

He analyzed, "In Asia, demand had been sluggish due to the resurgence of COVID-19 mainly in Southeast Asia, which has a high dependence on net petroleum product imports, but recently confirmed cases in Indonesia, Thailand, and Malaysia have peaked out, increasing the possibility of industrial production recovery and aviation fuel demand recovery."

Researcher Yoon stated, "Seasonal demand centered on heating oil is also expected," adding, "Actual gasoline and diesel margins are recording the highest levels of the year, driving the record high Asian refining margin ($5.7 per barrel). We forecast a clear improvement in refining margins from year-end to early next year and recommend low-price buying considering this."