SK Innovation sees solid diesel, seasonal gasoline demand boosting margins

SK Innovation, owner of South Korea’s top oil refiner SK Energy, said it expected refining margins to improve on the back of firm diesel demand and seasonal appetite for gasoline.

SK Innovation posted a 54 percent plunge in its operating profit for January-March to 331 billion won ($286.13 million), dented by weaker refining margins, compared with 712 billion won in the previous year.

Shares of SK Innovation dropped 2.3 percent after the results, while the KOSPI index edged 0.3 percent lower.

Diesel demand is expected to grow ahead of next year’s implementation of the International Marine Organization’s (IMO) lower-sulphur fuel oil regulations, the South Korean company said.

“The IMO implementation will go ahead as planned and gasoil crack will improve in the second half of the year, particularly in the fourth quarter on pre-stocking process,” Ko Chang-yong, a senior official at SK Energy, said in a call with analysts.

“As a result of that, significant improvement in gasoil demand growth is expected to improve refining margins,” Ku added.

In 2017, SK Innovation said it planned to build a 40,000 barrels per day (bpd) Vacuum Residue Desulfurisation (VRDS) by 2020 as a way to produce clear fuels as the stricter sulfur regulations were set to come into force from 2020.

The company said it was keen to start commercial operations of its desulfurization unit in July 2020.

A day earlier, S-Oil, South Korea’s third-biggest refiner by capacity, said tighter supply of refined products on a string of refinery outages and seasonal gasoline demand were expected to help refining margins improve in the second quarter.

Reporting by Jane Chung; Editing by Joseph Radford and Sherry Jacob-Phillips

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