S-Oil Corp.’s petrochemical factory in Ulsan, 414 kilometers southeast of Seoul, is seen in this photo provided by the South Korean refiner.
SEOUL, May 18 (Korea Bizwire) – South Korea’s oil refining industry enjoyed record-high first quarter results thanks to an improvement in oil-refining margins resulting from soaring oil prices.
Nonetheless, the industry remains cautious due to the boomerang effect of what are now sky-high prices.
A spike in oil prices, in general, leads to an increase in the price of petrochemical products. However, amid growing concerns about an economic slump, surging oil prices could result in a sharp decline in demand.
The benchmark Singapore complex margin — a key measure of oil refining companies’ profitability — stood at US$24.20 per barrel in the second week of this month, a dramatic increase of $18.30 from $5.90 in the first week of January.
Against this backdrop, there are concerns that prolonged high oil prices could dampen consumption from a long-term perspective, to the detriment of oil-refining companies.
If demand is not strong enough to allow the increase in oil prices to be reflected in selling prices, refiners could see their financial performance weaken.
Domestic gasoline consumption slid to 5.89 million barrels in March from 7.37 million barrels in January, according to data posted online by Korea National Oil Corp.
However, securities firms remain optimistic that oil-refining margins will remain strong for the time being.
“In the midst of the disruption of crude and refined oil supplies due to Russian invasion of Ukraine, the oil demand for power generation and military use is improving,” said Chun Woo-jae, an analyst at Hanwha Investment & Securities.
“Moreover, the reopening is facilitating the recovery of oil demand, producing a positive impact on refining margins.”
J. S. Shin (js_shin@koreabizwire.com)
