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No recovery in sight for pandemic-hit S. Korean oil refiners

A gas station in Seoul. (Yonhap)
A gas station in Seoul. (Yonhap)
A recent surge in coronavirus infections at home and abroad is likely to come as a big draw on South Korean oil refiners already battered by the fallout from the pandemic, industry sources said Tuesday.

Whipsawed by weak oil prices and sluggish refining margins, industry leader SK Innovation Co. and three other players posted a combined net loss of more than 5 trillion won ($4.5 billion) in the first half of the year.

The situation didn't improve much in the third quarter despite rising demand for gasoline during the summer vacation season and a slight increase in international crude prices.

GS-Caltex Corp. and Hyundai Oilbank Co. swung to a profit for the July-September period, but SK Innovation and S-Oil Corp. controlled by Saudi Aramco remained in the red.

Against this backdrop, the ailing oil refiners are widely expected to take another hit from tougher social distancing measures at home and abroad, which would result in weaker demand for gasoline and jet oil.

With COVID-19 cases spreading fast across the globe, international gasoline prices changed hands at $46 per barrel Friday, down from $48.7 on Nov. 11.

That contrasts with an upturn in global crude prices. Prices of Dubai crude, South Korea's benchmark, began to rise in the wake of the US presidential election and recovered to $44.19 per barrel as of Friday after falling as low as $36.3 per barrel on Nov. 2.

Despite an uptick in crude prices, local oil firms are faced with falling refining margins, or the difference in prices of their products and crude used to make them.

The benchmark Singapore complex gross refining margin sank to $0.9 per barrel in the third week of November from $1.3 in the second week. It is well below the refiners' break-even point of $4.

Industry watchers voiced concern that domestic oil refiners may not bask in the usual strong year-end demand for petroleum products due to the resurgence in coronavirus infections.

"Oil refiners' fourth-quarter performance is likely to depend on how much demand for gasoline and jet oil may decline due to the COVID-19 resurge, excluding heating oil," an industry source said.

In South Korea, petroleum products are in high demand around the end of the year due to increased demand for heating, combined with Christmas and other year-end events.

Making matters worse, virus-hit oil refiners are feared to face increased tax burdens at home and abroad, according to industry experts.

South Korea's ruling and opposition parties are pushing to impose local taxes on their products made at provincial refining facilities, and the government is moving to raise taxes on diesel.

Local refiners would also take a hit should US President-elect Joe Biden deliver on his campaign promise to introduce the so-called carbon adjustment fee, which would impose tariffs on oil products from heavy carbon dioxide emitters, they added. (Yonhap)
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