S.Korea's SK Innovation sees firm refining margins on tighter market
(Reuters) SK Innovation Co., which owns South Korea's largest refiner, expects refining margins to remain firm in 4Q due to low oil product inventories and seasonal demand.
Reflecting tightening market conditions, global inventories of refined oil products have fallen since early October, according to Thomson Reuters data.
A day earlier, South Korea's third-largest refiner, S-Oil Corp, said refining margins would be firm in 4Q, boosted by winter demand for heating oil.
"Strong refining margins are expected thanks to low global inventory levels of middle distillate products and a seasonal pick-up in demand," SK Innovation said in an earnings statement.
Despite expected demand-growth amid low oil prices, SK Innovation expected increases in global refining capacity to be limited.
"This year global oil demand is estimated to grow by 1.3 MMbpd to around 9.3 MMbpd," Lim Jae-wook, head of SK Energy's corporate planning office, said on a call with analysts.
By product type, the refiner expects cracks for gasoline to improve in 4Q on tight supply due to maintenance, although broader oversupply concerns will continue.
Stronger fuel oil margins are also expected on low inventories at trading hubs and on stable demand for bunker fuel oil, another senior SK Energy official told analysts.
"Falling Russian fuel oil exports are providing great support to fuel oil margins," he added.
With regard to sulfur emissions for marine fuel, the refiner said it would come up with measures according to stricter new rules.
The International Maritime Organization's (IMO) Marine Environment Protection Committee set global regulations on Thursday to limit the amount of sulfur emissions from vessels and said they would come into force from 2020.
The company's operating income dropped about 63% to $362.5 MM in 3Q from a quarter earlier, largely due to weak refining margins.
SK Energy operated its crude distillation units in Ulsan and Incheon at 85% of capacity on average in the 3Q, slightly up from 84% a quarter ago.
Reporting by Jane Chung; Editing by Joseph Radford
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