South Korean refiners set for Q1 profit return, improvement in Q2

South Korea’s refiners are set to return to the black when they report first-quarter earnings this week, and are expected to do even better in the current quarter as reduced gasoline supplies and the U.S. driving season bolster margins.

After a dire fourth quarter due to tumbling oil prices, SK Innovation and S-Oil have benefited from a bounce-back in prices since the start of 2019, although depressed margins partly eroded gains, analysts said.

Under pressure from excess gasoline supplies, Asia’s benchmark Singapore refining margin DUB-SIN-REF — the profit from turning a barrel of Dubai crude into finished products — hit the lowest since August 2013 at $1.52 a barrel on Jan. 25.

However, refining margins have averaged $4.40 a barrel so far in April, up from $3.20 a barrel in the first quarter, while Asian gasoline cracks GL92-SIN-CRK are now at their highest since October 2018.

“Reduced gasoline supplies on U.S. refinery outages are supporting refining margins and also U.S. gasoline stocks have fallen ahead of the U.S. driving season,” said Rho Woo-ho, an analyst at Meritz Securities.

Gasoline demand typically increases during the summer driving season, May through August, as many Americans take to the roads for vacations and outdoor activities.

U.S. gasoline stocks fell by 1.2 million barrels in the week ended April 12, and are forecast to fall by 0.3 million barrels for the week ended April 19, a preliminary Reuters poll showed on Monday.

S-Oil, whose major shareholder is Saudi Aramco, will announce its results on Wednesday, followed by SK Innovation, the owner of South Korea’s top refiner SK Energy, on Thursday.

SK Innovation’s first quarter operating profit is estimated at 306 billion won ($268.30 million), down 57 percent from 712 billion won from a year earlier, according to Refintiv SmartEstimate.

S-Oil is expected to post an operating profit of 254 billion won for the January-March period, compared with 256 billion won a year earlier, Refintiv SmartEstimate showed.

The pair posted a combined operating loss of 571 billion won in the fourth quarter. ($1 = 1,140.5000 won) (Reporting By Jane Chung; editing by Richard Pullin)

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