Domestic refiners are forecast to have posted record-breaking performances in the first quarter of 2022 as international oil prices have soared. Refining margins, an indicator of the profitability of refiners, rose to the highest level in 22 years, and crude oil inventory valuation gains also shot up.
Singapore’s composite refining margin in the fourth week of March stood at US$13.87 per barrel, up US$6.11 from US$7.76 in the previous week. This is the highest level since 2000 when related statistics began to be compiled.
The average refining margin in the first quarter of 2022 reached US$7.70 per barrel, a significant improvement from US$1.8 in the first quarter of 2021. Industry insiders believe that refiners become profitable when the refining margin tops US$4.
The refining margin dropped into negative territory in 2020 as oil demand plummeted due to the COVID-19 crisis. Then they remained at the level of US$1 to US$2 per barrel until the first half of 2021, and have been showing a recovery since the second half of 2021.
Refiners are also enjoying massive inventory valuation gains as the value of their crude oil stockpiles rose sharply. According to Korea National Oil Corp.’s Opinet, the price of Dubai crude oil, which is regarded as the standard for crude oil for Korean oil importers, soared 40 percent from US$76.88 per barrel at the beginning of January to US$107.71 per barrel at the end of March in 2022.
As a result, it is predicted that refiners will enjoy record-breaking earnings in the first quarter. S-Oil’s operating profit is expected to reach 1.13 trillion won, up 80 percent from the first quarter of 2021. The previous highest quarterly performance was 704.1 billion won in the second quarter of 2008.
However, refiners are preparing for the possibility of a sharp decline in oil prices in the future. “It is true that the refiners’ net profits will improve on a large scale as oil prices have soared in 2022,” SK Innovation vice chairman Kim Jun said in a meeting with reporters after a general meeting of shareholders on March 31. “However, nobody can accurately predict the movement of oil prices. We cannot rule out the possibility of oil prices plummeting.”
Korean refiners have fully operated their plants until the second half of 2021 and early 2022, but as global risks expand, they are considering operating their plants conservatively. “Usually, since the importation of crude oil is decided two to three months in advance, refiners will not adjust their utilization rates right away, but they are highly likely to shift to conservative mode beginning from May,” an industry analyst said.
Source: Business Korea