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Refiners set to rebound on higher margins, tight supply

South Korean oil refiners, led by SK Innovation Co., traded higher Wednesday, after some small corrections in the past few days, on hopes that margin spreads on key products still run high and oil prices will remain high, industry sources said.

SK Innovation, the No. 1 oil refiner, traded at 195,500 won ($177) on the Seoul bourse as of 1:40 p.m., up 2.09 percent, after touching a record high of 197,500 won at one point. No. 3 player S-Oil Corp. was quoted at 123,000 won, up 0.15 percent.

"There are hopes that margin spreads will expand in the aftermath of hurricanes that negatively affected refinery facilities in the US," said Chey Hyun-ki, an analyst at KTB Investment & Securities. "Hopes for an improvement in earnings for the third quarter, coupled with big dividends, are helping them fare well."

Yun So-yun, an analyst at BNK Investment & Securities, forecast that global oil prices may continue to rise on the back of tight supply and firm demand.

Local refiners reported weaker-than-expected earnings in the second quarter due to low oil prices and inventory losses. But rising refining margins are fueling speculation that their bottom line will be stronger than what has been expected.

The benchmark Singapore complex gross refining margin hovered around $8 per barrel last month, up from $7.40 in July, $6 in May and $5.80 in March, according to industry sources. Singapore is the regional trading hub of the benchmark Dubai crude.

Usually, a South Korean refiner can generate profit if the refining margin exceeds $5 per barrel.

Refiners in South Korea racked up record earnings in 2016 largely due to improved cracking margins, inventory gains and solid demand for petrochemical products.

The country's four major oil refiners reported a combined operating income of 8.03 trillion won last year, an all-time high. (Yonhap)
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