Middle East War Boosts Refining Margins for Korean Oil Companies

Refining margins for oil companies in Korea are expected to remain high due to disruptions in the global petroleum product supply caused by the ongoing Middle East war. According to the Korea Exchange, S-Oil's stock price rose 0.60% on August 31st, while SK Innovation's stock price surged 7.36%. SK On, a subsidiary of SK Innovation, signed a long-term contract to supply batteries for energy storage systems (ESS) to the United States.

The prolonged war has led to slower normalization of petroleum product supply compared to crude oil. Shinhan Investment & Securities analyzed that while crude oil procurement will be restored first due to bypass transportation, it will take more time to recover refining facilities and expand product inventory. As a result, the combined refining margin is expected to be $30 per barrel in the second half of this year and $19 next year.

S-Oil's compound refining margin in the second and third quarters is forecasted to exceed $41 per barrel by Yuanta Securities. The target price for S-Oil was raised from 175,000 won to 205,000 won, while SK Innovation's operating profit forecast for this year was increased by 7.3% to 9.2187 trillion won.