South Korean oil refiners, led by SK Innovation Co., are expecting their earnings to improve down the road on the back of a rise in refining margins, industry sources said on Mar. 7, 2019.
SK Innovation and other refiners, including GS-Caltex Corp. and S-Oil Corp., reported weaker-than-expected earnings in the fourth quarter of last year due to narrowed margins from their refining business. A drop in oil prices led to a rise in valuation losses of their inventories.
The margin is the difference between the total value of petroleum products coming out of an oil refinery and the cost of crude and related services, including transportation.
Usually, a South Korean refiner can generate profit if the refining margin exceeds US$4-5 per barrel.
But the benchmark Singapore complex gross refining margin (GRM) was below $3 per barrel in January, compared with $4.6 in November and $5.2 in October.
Last week, the margin reached some $4 per barrel, rising for the fifth consecutive week.
"The refining margin rebounded to an average level seen in the past, from a sharp drop," said Lee Hee-chol, an analyst at KB Securities. "The margin will further rise down the road after March as oil demand remains firm."
The analyst said maintenance works at refining facilities in other nations are also cutting oil supplies, which in turn jacks up oil prices.
"The recent rise in oil prices helped raise refiners' margins, and their earnings will improve down the road as well," Lee Eung-joo, an analyst at Shinhan Financial Investment. (Yonhap)