Korean refiners eye strong 2022 earnings as margins improve

Asia’s benchmark refining margin is staging a rebound, providing relief for South Korea’s oil companies, which now expect their full-year earnings to come in better than they anticipated just a few months earlier.

The benchmark Singapore refining margin hit a three-month high of $8.4 per barrel in the third week of November.

The rise was largely due to improving naphtha margins, which recently fell to their lowest levels since the 2008 global financial crisis, industry officials said.

Refining margin, the difference between the total value of petroleum products and the cost of crude and related services, is closely linked to international oil prices.

The rebounding petroleum refining margins are providing relief to Korea’s four major oil companies – SK Innovation Co., GS Caltex Corp. S-Oil Corp. and Hyundai Oilbank Co.

If the upward trend continues through to the end of the year, the companies’ combined full-year operating profit could exceed 20 trillion won ($14.8 billion), analysts said.

The four majors’ profits surged to record highs in the second quarter of this year on soaring refining margins.

But their earnings began to sap from the third quarter, clouding their full-year outlook.

The four oil refiners posted a combined 15 trillion won in operating profit in the first nine months of the year, with some analysts forecasting over 20 trillion won in full-year profit.

Critics, however, remained cautious about the rosy prospects.

“It remains to be seen whether the refining margins will continue to rise given that the global economy is mired in a quandary and many economists expect the economy to worsen next year,” said a local brokerage analyst.

Write to Seo-woo Jang at suwu@hankyung.com
In-Soo Nam edited this article.