By Park Jin-hai
Local oil refiners are forecast to post the best performance this year, buoyed by low crude prices and increased margins.
According to industry data, the big four local refiners ― SK Innovation, GS Caltex, S-Oil, and Hyundai Oilbank ― are expected to report yet another good performance in the fourth quarter, following a 4.47 trillion won combined operating profit in the previous quarter, the highest in four years.
Industry watchers are now weighing in on whether their 2015 performance could break the 2011 record.
It is a sharp turnaround from their 2014 performance, when they posted 1.4 trillion won in operating losses. In particular, losses in the refining sector were over 2.3 trillion won, according to data from the Korea Petroleum Association.
Their operating profit has been on a downturn since reaching a high of 5.3 trillion won in 2011, slipping to 1.7 trillion won in 2012 and to 1.6 trillion won in 2013.
Lowered crude prices could be bad news for refiners in the short term because it could lead to increased end product prices. But in the long run, the sustained low price drops purchasing costs.
Also, the low oil price may trigger increased demand for naphtha and Bunker C fuel oil, both secondary byproducts of the refining process and alternatives to gas.
The rise in Dubai crude oil margins has contributed to the local refiners’ record performance as well. The Singapore gross refining margin has become strong lately, averaging in at $7.5 for a barrel in November, following the drop to $5.6 in July ― $4 to $5 are regarded as a break-even point in the industry.
Lee Eung-ju, an analyst at Shinhan Investment, predicted the margin next year will remain strong at $8.4 per barrel, signaling a positive outlook.
Experts say that the industry will retain a generally low crude price trend but gradually raising the price is the best scenario.
“Due to the oversupply of oil and the imminent U.S. interest hike, oil prices will be weak, remaining between $47 to $55. But, as the demand for crude oil and petrochemical products rises by the end of the year, the price will rise gradually,” said Son Yong-joo, an analyst at Kyobo Securities.
He said next year local refiners can expect actual gains from the low crude price and improved margins in the market, once the price stabilizes.
Yoon Jae-sung, an analyst at Hana Financial Investment, agrees. “The sustained lower oil price has stimulated demand,” he said. “2015 has been the year that local refiners have found the light at the end of the tunnel after struggling with oversupply and oil price fluctuations.”