Impact of Natural Gas Price Surge
Increase in Refining Margins for Oil Companies
[Asia Economy Reporter Kwon Jae-hee] As international oil prices continue to plunge, causing refining stocks to show sluggish trends, there is still an analysis that refining stocks should be closely watched. This is because natural gas prices are hitting new highs daily, drawing attention to alternatives such as kerosene and diesel, and refining margins, which are directly linked to refiners' earnings, are rising.
On the 1st (local time), West Texas Intermediate (WTI) crude oil closed at $86.61 per barrel, down 3.28% from the previous trading day at the New York Mercantile Exchange (NYMEX). This is the first time WTI has fallen to the mid-$80 range since January this year, early in the Russia-Ukraine war. Concerns over a global economic recession due to interest rate hikes worldwide and the full lockdown of Chengdu in Sichuan Province, China, contributed to a decline of over 3%. This marks the third consecutive trading day of decline. Due to the prolonged Russia-Ukraine war, WTI had risen to a peak of $130 per barrel in March this year.
Consequently, refining stocks have also struggled. According to the Korea Exchange on the 2nd, SK Innovation was trading at 180,000 KRW, up 0.84% from the previous trading day. SK Innovation had recorded five consecutive days of decline and experienced a sharp drop of over 6% the day before. S-OIL has been declining for four consecutive trading days since reaching a peak of 108,500 KRW on the 30th of last month. As of 9:02 AM on the 2nd, it was at 96,900 KRW, down 2.22% from the previous trading day.
Typically, a drop in international oil prices negatively affects refining stocks, but there is still analysis suggesting that refining stocks should be watched closely. While high oil prices are important for refiners' earnings, refining margins are also essential, and these margins are expected to continue rising. Especially with the increase in heating demand during winter, European natural gas prices have again surpassed previous highs, inevitably increasing demand for alternatives such as kerosene and diesel.
Choi Go-woon, a researcher at Korea Investment & Securities, said, "Domestic refining sectors are undervalued compared to their profit momentum," adding, "Last week, refining margins rose to nearly $20, and considering the winter season, it is time to reinvest in the refining sector."
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