SEOUL: South Korean refiners reported on Monday (Nov 4) sharp losses in the third quarter from oil refining, but expect their margins to recover in the fourth quarter with peak winter demand and refinery run cuts in Asia.
SK Innovation, parent of South Korea’s largest refiner SK Energy, said the July-September quarter operating loss for its refining business was 616.6 billion won (US$450.2 million), its largest loss since the fourth quarter of 2022.
Declining oil prices amid concerns over slowing demand in China and a potential recession in the US caused “significant” inventory-related losses, while refining margins were poor in the third quarter, the company said.
“We were in an unfavourable macro backdrop, which drove down the crude oil price and the overall product market was squeezed,” Son Sung-chul, head of corporate strategic planning at SK Energy, told analysts on an earnings call.
“We continued to maintain a minimal run rate for our crude distillation units (CDUs), so that we can effectively defend against negative topping margins,” Son said.
The company maintained its average CDU run rate at 81 per cent in third quarter from the second quarter, but it is down 1 per centage point from 2023.
S-Oil, the country’s third-largest refiner whose main shareholder is Saudi Aramco, reported a September-quarter operating loss of 415 billion won on Monday, versus a 859 billion won profit a year earlier.
Its refining business reported its largest quarterly loss since the first quarter of 2020, according to company documents.
Last week, unlisted refiner Hyundai Oilbank swung to a 263 billion won operating loss for the third quarter, versus a 262 billion won profit a year earlier.
Asia’s refining margins between June and August slumped to the lowest since the third quarter of 2022, LSEG data showed, forcing refiners to cut output.
While margins have recovered in recent weeks on lower crude prices, oversupply of refined products and competition from new refineries in China and the Middle East weighed on the outlook for Asian refiners, analysts said.
For the October-December quarter, SK Innovation said it expects lower oil prices to support refining margins while seasonal heating demand sets in. The company added that economic prospects from growth in the US and from China’s stimulus could improve and support oil demand.
In the fourth quarter, SK may keep crude throughput at a similar level as the third-quarter if margins remain weak, but it plans to increase output if the market recovers, Son said, adding that it is also importing fuel oil to improve margins.
S-Oil also said cuts in supply from refineries around the region would support better margins in the fourth quarter.
