SK Development, the parent company of SK Energy, South Korea's largest refiner, reported an operating loss of 616.6 billion won ($450.2 million) for its refining segment in the July-September period, marking its most substantial loss since the fourth quarter of 2022.
The company attributed these losses to falling oil prices, which were influenced by concerns over diminishing demand in China and the potential for an economic downturn in the United States, leading to significant inventory-related losses. Refining margins were also weak during the third quarter, as noted by the company.
"We faced a challenging macroeconomic environment that pressured oil prices and constrained the overall product market," stated Kid Sung-chul, head of business strategic planning at SK Energy, during a conference call with analysts.
To mitigate the impact of unfavorable margins, the company maintained a conservative run rate for its crude distillation units (CDUs). Kid mentioned that they kept the CDU run rate at 81% in the third quarter, consistent with the second quarter, although this represents a decline of 1 percentage point compared to 2023.
S-Oil, the third-largest refiner in the country, with Saudi Aramco as its primary shareholder, reported an operating loss of 415 billion won for the September quarter, a stark contrast to a profit of 859 billion won in the same period last year. This loss is the largest for its refining segment since the first quarter of 2020, according to company records.
Additionally, Hyundai Oilbank, an unlisted refiner, reported a shift to a 263 billion won operating loss for the third quarter, compared to a profit of 262 billion won a year earlier.
Data from LSEG indicated that Asia's refining margins, represented by the DUB-EFS-1M index, fell to their lowest levels since the third quarter of 2022 between June and August, prompting refiners to reduce their output.
Recent weeks have seen a recovery in margins due to declining crude prices; however, analysts noted that an oversupply of refined products and increased competition from new refineries in China and the Middle East have negatively impacted the outlook for Asian refiners.
For the October to December quarter, SK Innovation anticipates that lower oil prices will bolster refining margins, particularly as seasonal heating demand begins to rise. The company also mentioned that economic prospects from growth in the U.S. and stimulus measures in China could enhance and support oil demand.
In the fourth quarter, SK may maintain crude throughput at levels similar to the third quarter if margins remain under pressure. However, the company plans to ramp up production if the market shows signs of recovery. Additionally, they are importing fuel oil to help improve margins.
S-Oil has also indicated that reductions in supply from refineries in the region are expected to contribute to improved margins in the fourth quarter.