South Korean oil refiners’ fourth quarter performance appears gloomy as OPEC’s recent decision not to cut its output target is likely to lead to greater inventory losses, according to industry sources Thursday.

“The loss is inevitable for refiners as it takes about a month to ship the final product to markets from the time we buy the crude oil at higher prices,” an industry insider told The Korea Herald, declining to be identified.

SK Innovation also predicted its fourth quarter earnings will be hurt as a 38 percent fall in prices since a June peak has increased its losses from stockpiles.

“The performance in the fourth quarter will most probably get worse,” said an SK Innovation official. 

S-Oil and SK are among the nation’s top four refiners along with GS Caltex and Hyundai Oilbank. Combined, they have posted a deficit totaling 230 billion won ($206 million) due largely to inventory valuation losses in the third quarter.

This is because the refiners ― whose business portfolios mostly involve refining crude oil ― are forced to watch as the market prices fall subsequent to the purchase of crude oil at higher prices.

Last week, the 12-member group OPEC, which supplies about 40 percent of the world’s oil, kept its collective quota at 30 million barrels a day, a target previously set in January 2012.

“Under the current trend, the losses in the fourth quarter will only get worse,” said one industry observer.

The SK Innovation employee said even if the company decides to change its crude oil purchase plans, a negative impact will be hard to avoid.

To minimize their losses, local refiners are now devising strategies for diversifying their portfolios to cut costs.

On Monday, S-Oil announced a plan to invest 200 billion won to improve facilities in its Ulsan factory in a bid to reduce operational expenses and maximize the efficiency of its core business area including oil refining and petrochemicals.

Under the plan, the company also will attempt to improve its portfolio by reducing the output of low-value-added products like bunker C fuel oil and boost the production of high-value-added ultralow-sulfur diesel.

According to the Korea National Oil Corp., gasoline prices at service stations nationwide have dropped to 1,697.73 won per liter as of Thursday, the lowest price in the past four years.

Dubai crude oil, which accounts for 80 percent of Korea’s oil imports, dropped to $77 a barrel in November from $106 in July. South Korea relies entirely on imports for its oil needs.

By Park Han-na (hnpark@heraldcorp.com)