On May 11, S-Oil announced an operating profit of 1.2311 trillion won for the first quarter. According to securities firms, SK Innovation is projected to report 2 trillion won, GS Caltex around 1.9 trillion won, and HD Hyundai Oilbank approximately 200 billion won in operating profit. In the same period last year, the combined operating profit of the four refiners was only 811 billion won, but this year it is expected to exceed 5 trillion won.
The significant profits are largely due to the sale of crude oil purchased at relatively low prices before the conflict, resulting in substantial inventory valuation gains. However, these gains are seen as temporary, and the sustainability of improved performance in the second quarter remains uncertain, depending on oil price trends.
The refining sector argues that reasonable compensation for losses related to the price cap policy is urgently needed following the war. The government has been controlling the prices of petroleum products sold at gas stations under a "price cap policy" since March 13, aimed at stabilizing oil prices and living costs. The government also announced that it would provide financial support in the event of losses incurred by refiners due to this measure.
The lack of clarity regarding the compensation method and criteria is problematic. It is estimated that the cumulative losses for the four domestic refiners have exceeded 3 trillion won, with weekly losses around 500 billion won. The rapid accumulation of losses is due to insufficient reflection of price increases.
Industry insiders contend that the first-quarter earnings surprise is merely an illusion caused by inventory valuation gains, emphasizing the necessity for loss compensation. With high oil prices persisting, the cost burden is expected to be significantly reflected starting in the second quarter. Additionally, if international oil prices plummet due to a ceasefire or peace agreement, there are concerns about reduced refining margins and substantial inventory valuation losses.
A representative from the refining sector stated, "The improvement in first-quarter results reflects the benefits of low-cost crude oil inventories secured before the surge in oil prices. Currently, we are purchasing crude oil at high prices, but the selling prices are restricted by the price cap, creating significant pressure. Furthermore, the lack of clear criteria for loss compensation could greatly increase performance volatility if oil prices decline in the future."
* This article has been translated by AI.
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