Combined Operating Profit of 7.5 Trillion KRW
Increase of 5.78 Trillion KRW in One Year
Concurrent Decline in Oil Prices and Refining Margins
Increased Earnings Uncertainty in Second Half
On the 4th, as international oil prices fell and fuel tax was further reduced, fuel prices nationwide decreased. Citizens are refueling their vehicles at a gas station in downtown Seoul. Photo by Mun Ho-nam munonam@
[Asia Economy Reporter Choi Seoyoon] The refining margin, which was around $20, has fallen below the break-even point of $4 to $5, signaling a red alert for the refining industry. Unlike the record-breaking performance in the first half of the year, the second half is expected to see a significant decline in earnings due to falling oil prices and a sharp drop in refining margins, a key profitability indicator for refiners.
According to the refining industry on the 14th, the combined operating profit of the four major refiners?SK Innovation, GS Caltex, S-Oil, and Hyundai Oilbank?in the second quarter was 7.5536 trillion won. This is an increase of about 5.78 trillion won (326%) compared to the same period last year.
SK Innovation's second-quarter operating profit was 2.3292 trillion won, four times higher than the previous year, and GS Caltex (2.1321 trillion won) increased sixfold during the same period. Following that, S-Oil (1.722 trillion won) and Hyundai Oilbank (1.3703 trillion won) increased threefold and fivefold, respectively.
The prolonged Russia-Ukraine war, increased demand for petroleum products after the COVID-19 endemic, and rising oil prices contributed to margin improvements and strong earnings.
However, the prevailing assessment is that it will be difficult to expect earnings improvement in the second half. International oil prices, which once exceeded $100 per barrel, have been declining for six consecutive weeks, causing refining margins to deteriorate.
The Singapore complex refining margin recorded an annual low of $2.71 last month. This is a 91% plunge from $30.49 on June 30. It slightly rose to $6.6 in the first week of this month but remains at an unstable level.
The refining margin is the price of petroleum products such as gasoline and diesel minus the cost of oil prices and operating expenses, with the break-even point generally considered to be $4 to $5 per barrel. An industry insider said, "Due to the economic downturn and falling oil prices, there is significant uncertainty in inventory valuation gains and refining margins in the second half."
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