As international oil prices continue to decline, the refining margins, which are directly linked to the revenue of the refining industry, are showing a favorable trend, leading oil companies to expect improved performance.
According to Petronet on the 7th, the composite refining margin rose from an average of $2.1 per BARREL in January to about $3.6 in the third week of February. The refining margin is the amount remaining after subtracting the costs of crude oil imports, refining expenses, and transportation expenses from the revenue from the sale of refined products. An increase in the refining margin improves the performance of oil companies.
Domestic refiners, such as SK Innovation, S-Oil, and GS Caltex, import crude oil and refine it to produce products such as asphalt, fuel oil, diesel, kerosene, aviation fuel, naphtha, gasoline, and LPG. The breakeven point for refinery margins is typically estimated to be between $4 and $5.
The industry believes there is a high possibility that refining margins will increase further. The International Energy Agency (IEA) and the U.S. Energy Information Administration (EIA) projected that oil demand would increase by 1.1 million to 1.4 million BARRELs this year, while the global increase in refining capacity is about 300,000 BARRELs. The recent decline in crude oil prices, which are raw materials, is also a boon for the refining industry. When oil prices fall, refined product consumption tends to become active.
International oil prices are expected to remain weak for the time being. U.S. President Donald Trump has announced a so-called "cheap energy policy" and hinted at increasing oil production, while the Organization of the Petroleum Exporting Countries (OPEC) and the OPEC+ group have also decided to lift production cuts. When crude oil production increases, prices fall.
The prospect that economic activity will slow due to the fallout from the tariff war initiated by President Trump and that crude oil demand will decrease has also been reflected in international oil prices. On the 5th (local time), Brent crude fell to $68.33 per BARREL, the lowest level since December 2021, while West Texas Intermediate (WTI) crude, the U.S. benchmark, fell for the fourth consecutive day, closing at $65.22.
The imposition of tariffs on Canadian and Mexican crude oil imported by the U.S. is also seen positively by South Korea's refining industry. Hwang Seong-hyun, a researcher at Eugene Securities, noted, "As tariffs are imposed on Canadian and Mexican crude oil, the competitiveness of refining facilities in the U.S. has deteriorated, leading to a decline in operating rates, which is expected to benefit Asian refiners," adding, "If the lack of refining capacity raises refining margins, we could see a repeat of the period in 2015 when low oil prices and rising refining margins resulted in good performance for refiners."