Drilling a horizontal shale gas well in Appalachian Basin in the U.S. (image: Public Domain)
SEOUL, March 18 (Korea Bizwire) — South Korean oil refiners will likely benefit from a crisis in the U.S. shale industry sparked by plunging international crude prices, industry sources said Wednesday.
A recent tumble in oil prices is projected to cut U.S. shale oil firms’ production sharply down the road, leading to a drop in supply from American producers and rising prices of petroleum products.
According to the sources, Bloomberg New Energy Finance (BNEF) recently predicted U.S. shale oil output to drop by 1 million barrels per day if international crude prices stay in the US$30-per-barrel level.
U.S. shale oil producers usually see an oil price of $30 to $50 per barrel as their break-even point.
U.S. West Texas Intermediate (WTI) crude futures closed below the $30 per barrel range in New York on Monday, the lowest level since 2016.
The nosedive followed major oil producers’ failure to agree on an output reduction. Saudi Arabia, the world’s biggest oil exporter, started a price war with Russia by cutting its selling prices and vowing to release its stockpiles.
BNEF even raised the possibility of U.S. shale oil firms going bust in droves as they face difficulties raising investment money due to low profitability and sharply reduced room for cost-cutting.
This undated file photo shows South Korean tanker trucks traveling on a road. (Yonhap)
South Korean analysts chimed in. “U.S. shale oil production is highly likely to switch to a decline within months, given the fact that the industry’s output tends to drop sharply as time passes,” said Shim Hye-jin, an analyst at Samsung Securities.
Those analysts also projected South Korean refiners to bask in a possible decline in U.S. oil production that could improve their worsening refining margins.
A refining margin, a key measure of refiners’ profitability, is the difference between the total value of petroleum products and the cost of crude and related services.
Their refining margins, which once lapsed into negative terrain last year, began to pick up early this year before tanking from the second week of February in the wake of the coronavirus outbreak.
Industry sources said refining margins ended the second week of March lower on a U.S. ban on entrants from Europe after getting off to a higher start thanks to Saudi Arabia’s price cut.
Industry leader SK Innovation Co. and other South Korea refiners saw their earnings plunge in 2019 due to negative refining margins.
Yet some watchers struck a cautious note, saying local oil refiners may enjoy a recovery in refining margins in the latter part of the year, depending on how the coronavirus pandemic unfolds.
(Yonhap)
