[Diesel Price Shock] Refiners and Crude Oil ETN Investors Smile... Airline Stocks Frown

[Image source=Yonhap News]

[Asia Economy Reporter Kwon Jae-hee] From 5.2971 trillion won to 9.1893 trillion won.

This is the sales revenue of S-OIL for last year and the first quarter of this year. It is considered the biggest beneficiary in the stock market due to the surge in diesel prices. Korean refiners mainly import Dubai crude oil, which is a heavy crude with high chemical content, resulting in a higher proportion of diesel compared to gasoline. Korean refiners have a diesel ratio of 55%, which is higher than that of European or American refiners. The diesel ratio for European and American refiners is about 30%.

Among refiners, S-OIL is the top preferred stock because Saudi Aramco is the largest shareholder, reducing the risk of crude oil procurement. S-OIL's operating profit also surged from 628.8 billion won in the first quarter of last year to 1.3313 trillion won in the first quarter of this year. After the outbreak of the Ukraine war in late February, when S-OIL's stock price was around 80,000 won, it has recently been trading in the 100,000 won range.

On the other hand, airline stocks are expected to be hit by the diesel shortage crisis. As demand for overseas travel increases and expectations for reopening rise, the rise in international oil prices is expected to hamper airline stocks. Jet fuel is a type of kerosene, and kerosene has properties similar to diesel. Jet fuel has currently decreased to a four-month low, and the fundamental cause of the jet fuel shortage is attributed to the diesel shortage.

Yoon Jae-sung, a researcher at Hana Financial Investment, said, "The diesel shortage is spreading to a jet fuel shortage, acting as an obstacle to the reopening expectations of airline stocks," adding, "Ultimately, for the global diesel shortage to be resolved, either gas and coal prices in Europe must fall (increasing production) or demand must decrease, but neither is easy to solve, so the energy crisis is expected to continue for the time being."

Investors looking for exchange-traded notes (ETNs) related to the rise in crude oil prices, including diesel, have also increased. This is because products linked to international oil prices can be easily bought and sold.

According to the Korea Exchange on the 27th, as of the previous day, the net asset value (NAV) of ETNs exceeded 11 trillion won. This is about a 44% increase compared to June last year. The number of listed products has also increased significantly. From 169 a year ago, it surged about 73% to 293.

ETNs are debt securities listed and traded on the exchange like exchange-traded funds (ETFs), issued by securities companies as structured products that track the returns of commodities such as crude oil, zinc, and wheat. Because they track the price of underlying assets, they are suitable for investing during inflation periods when commodity prices surge.

Among ETN products, crude oil showed the steepest rise after natural gas. The WTI crude oil futures ETN rose about 200% compared to a year ago.

Hwang Byung-jin, a researcher at NH Investment & Securities, said, "The supply and demand for refined products remain tight even during the off-season between the heating season (November to March) and the driving season (June to August), which is another factor supporting strong international oil prices," adding, "ETNs are products that generate large profits in volatile markets but carry a high risk of delisting, so investors should be cautious."