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Refining margins

Korean oil companies to bask in rising refining margins, growing demand

By May 07, 2021 (Gmt+09:00)

SK Innovation refinery
SK Innovation refinery

Oil refiners in South Korea and across Asia have been among those hit hardest by the subdued demand amid the global pandemic. With increasing vaccinations and cross-border transportation, however, they are set to bask in rising refining margins alongside higher demand for petroleum products.

According to the oil industry on May 7, the benchmark Singapore complex gross refining margin rose to this year’s high of $3.38 per barrel in late April from $1.4 in January. So far this month, the Asian refining margin has remained above $3.

Except some market leaders, most Asian oil companies see a refining margin of $4 as the breakeven point.

But Korea’s top refiner SK Innovation Co. and three other local rivals – Hyundai Oil bank Co., S-Oil Corp. and GS Caltex Corp. – have secured advanced technology and facilities, making a profit even with a refining margin of $3, according to an official at a Korean oil company.

A refining margin is the difference between the total value of petroleum products and the cost of crude and related services and is considered a key indicator of refiners' profitability.


Global crude oil prices usually move in sync with refining margins, but the two have gone in opposite directions earlier this year with the Asian refining margin falling to $1.9 in March while major oil prices such as the Dubai and Brent benchmarks rising some 20% in the first three months of the year.

The divergence arises from a crude production cut by majors, including Saudi Arabia, whereas the end-market demand remained weak due to the global COVID lockdown and slow economic activities.

Korean oil companies to bask in rising refining margins, growing demand

Korean refiners also suffered from the falling refining margin but could post a profit in the first quarter owing to their inventory evaluation gains after importing crude on favorable terms under a long-term contract.

S-Oil reported an operating profit of 629.2 billion won ($561 million) in the first quarter, while Hyundai Oilbank posted a 412.8 billion won profit.


Analysts said the business outlook for Korean oil companies, which export more than half of their products, is bright with signs of growing demand from the US in particular, where the rate of vaccinations is steadily increasing.

The demand for jet fuel from US airlines in the past two months has risen about 20% from the year-earlier period.

Delta Air Lines Inc. said from May 1 it is resuming selling all of its seats onboard its aircraft after a year of blocking middle seats, citing improving public health situation combined with a growing airline recovery.

Some low-cost carriers such as Southwest Airlines Co. already lifted their middle seat block from March.

As summer driving season looms, gasoline prices have also started to climb, with the gasoline refining margin approaching $10 per barrel, returning to levels seen before the coronavirus.

Hyundai Oilbank refinery
Hyundai Oilbank refinery

Meanwhile, oil supply seems to be limited.

According to the International Energy Agency (IEA), global oil refining companies are forecast to cut their operations by 200,000 barrels a day this year due to a shutdown of aging facilities.

“About 8% of aged refining facilities will stop their operations this year,” said Yuanta Securities analyst Hwang Gyu-won.

Write to Jae-Kwang Ahn at

In-Soo Nam edited this article.

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