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The coronavirus pandemic is likely to have come as a big draw on South Korean oil refiners last year as their low refining margins ate into their profitability, industry sources said Sunday.
Whipsawed by weak oil prices and sluggish refining margins, industry leader SK Innovation Co. and three other players are projected to have posted a combined net loss of more than 5 trillion won (US$4.6 billion) last year.
The situation didn’t improve much in the third quarter of last year despite rising demand for gasoline during the summer vacation season and a slight increase in international crude prices.
Against this backdrop, the ailing oil refiners took another hit from tougher social distancing measures at home and abroad during the fourth quarter of last year, which resulted in weaker demand for gasoline and jet oil.
Despite an uptick in the refining margin during the fourth quarter of last year, local oil firms were faced with falling refining margins, or the difference in the prices of their products and crude used to make them.
The benchmark Singapore complex gross refining margin stood at $1.3 per barrel in the fourth week of December, well below the refiners’ break-even point of $4.
Industry watchers voiced concern that domestic oil refiners did not bask in the usual strong year-end demand for petroleum products due to the resurgence in coronavirus infections.
In South Korea, petroleum products are in high demand around the end of the year due to increased demand for heating, combined with Christmas and other year-end events.
Analysts said local refiners may see a recovery starting during the second half of the year.
Meritz Securities estimated this year’s refining margin at $6.6 per barrel.
