This year, there is a growing outlook that the performance of domestic oil refiners will worsen. Recently, crude oil prices have dropped significantly, resulting in a decrease in the revenue indicator known as refining margin, and the potential for an economic recession has increased due to the tariff policies of former U.S. President Donald Trump. There are also concerns that if performance rebounds in the future, calls for the introduction of a windfall tax may arise again.
On the 16th (local time), the price of West Texas Intermediate (WTI) crude oil for May delivery on the New York Mercantile Exchange (NYMEX) closed at $62.47 per barrel, up $1.14 (1.9%) from the previous day. The price rebounded on news that China, the world's largest crude oil importer, is turning to Canadian oil instead of U.S. oil; however, crude prices have continued to decline recently.
WTI has fallen approximately 13% this month alone since recording $71.48 per barrel at the end of last month. It closed at $59.58 on the 8th, dipping below $60 for the first time in four years since April 2021.
The recent significant drop in crude oil prices is due to the increased uncertainty in the global economy resulting from the tariff policies of the Trump administration. The International Energy Agency (IEA) noted in a report published on that day, "Trade conflicts are escalating due to U.S. tariffs. While it was expected that the average daily global crude oil demand would increase by 1.03 million barrels compared to the previous year, it is now projected to decrease to 730,000 barrels."
As the decline in crude oil prices continues, the possibility of a decrease in refining margin, which is directly linked to oil refiner revenue, has grown. The refining margin is the price difference of petroleum products such as gasoline and diesel obtained by refining crude oil, minus the crude oil price.
The Trump administration has imposed high tariffs on China. The U.S. raised tariffs on China from 81% to 125% and increased it to 145% starting on the 10th. As a result, China also decided to impose a 125% tariff on the U.S., raising concerns that the trade conflict between the two countries will become prolonged.
As a result, there are pessimistic views in the domestic oil refining industry that this year's operating profits, which declined last year, will also drop. The Korea Petroleum Association (KPA) projected during a briefing on "Oil Status and Challenges" held on the 15th that, "Due to the U.S. tariff policies and the prolonged economic slowdown in China, a worsening of performance is expected this year."
The four domestic oil refiners, SK Innovation, GS Caltex, S-Oil, and HD Hyundai Oilbank, suffered poor performance last year. SK Innovation's operating profit fell 83.4% year-on-year to 315.5 billion won, while GS Caltex recorded 548 billion won, a decline of 67.4%. S-Oil and HD Hyundai Oilbank's operating profits decreased by 68.8% and 58.2%, respectively.
The operating profit margin of the four oil refining companies was 6.4% during the boom year of 2022, but it plummeted to 1.4% in 2023 and sank to -0.1% last year.
The oil refining sector is concerned that discussions about the introduction of a windfall tax may resurface ahead of the presidential election. A windfall tax is an additional tax levied on corporations with substantial profits, beyond corporate tax. Oil refiners have been identified as primary targets for windfall taxes, alongside banks.
Lee Jae-myung, a prominent presidential candidate and former leader of the Democratic Party of Korea, has argued several times in the past for the necessity of introducing such a tax. He said in 2023, "Countries such as the United Kingdom, Greece, Romania, and Italy have already implemented windfall taxes on the energy industry, and the U.S. has proposed legislation to tax excess profits for oil companies."
An official in the oil refining sector said, "Recent performances of oil refiners have worsened considerably, and with the ongoing economic downturn, there may not be significant interest in introducing a windfall tax in the political arena."