The second-quarter performance of the four domestic refiners SK Innovation, GS Caltex, HD Hyundai Oilbank, and S-Oil is expected to worsen compared to the first quarter. This is due to international oil prices falling to their lowest level in four years, causing a reverse lagging effect (selling refined petroleum products made from expensive crude oil at cheaper prices), and decreased oil demand expected from the tariff war initiated by U.S. President Donald Trump.
According to the Korea National Oil Corporation (KNOC) on the 23rd, the price of Dubai crude, which was $80.41 per barrel (1 barrel equals 158.9 liters) in January, averaged $67.74 in April. During the same period, Brent crude fell from $78.35 to $66.46, and West Texas Intermediate (WTI) dropped from $75.10 to $64.46.
The downward trend continued into May. The average price per barrel traded from May 1 to 20 was ▲Dubai crude at $63.41 ▲Brent crude at $63.73 ▲WTI at $60.79.
The United States and the Organization of the Petroleum Exporting Countries (OPEC) are planning to increase production, so international crude oil prices are likely to fall for the time being. U.S. President Donald Trump has suggested a 'half-price energy policy' and hinted at an increase in oil production, and OPEC has decided to lift the production cuts.
When international oil prices fall, refiners find themselves in a situation where they must sell crude oil purchased at higher prices at lower prices. An industry insider noted, 'Oil prices began to decrease significantly in April. Considering the lagging effect, the second-quarter performance will not be good.'
Due to the possibility of a global economic downturn, oil demand is expected to slow. The International Energy Agency (IEA) has revised its forecast for global oil demand increase this year from 1.03 million barrels per day to 730,000 barrels per day. According to Statista, last year, global oil demand (including biofuels) was 100.375 million barrels per day.
During periods of falling oil prices, an increase in crude oil inventory also raises asset valuation losses. Although refining margins have recently increased, this is why refiners are not benefiting. The Singapore complex refining margin, which was around $3.10 per barrel in the first quarter of last year, had risen to $6.34 as of the 12th.
An industry insider stated, 'The refining margin considered the breakeven point is around $4 to $5, but the decline in international oil prices and reduced demand offset the increase in refining margins.'