Refining Margin at $63, Outlook for Oil Refining Industry Remains Strong

The expectations for improved performance of domestic oil refiners continue to ride on the strength of refining margins. The refining margin is the price difference that occurs when crude oil is purchased and sold as refined products. Recently, the refining margin has reached a record high of $63, driven by demand for refined products and supply disruptions. Analysts at Shinhan Investment Corp. predict that the strong performance of the refining industry will last longer than expected, and that profit expansion will continue based on high refining margins and cash flow. Factors contributing to the widening refining margin include attacks on Russian refineries, reduced production in China, and increased demand during the summer peak season. Low inventory levels are also exacerbating the supply shortage of refined products. U.S. gasoline inventories are at their lowest level since 2012, and OECD crude oil and petroleum product inventories have also hit their lowest since 2014. If refiners increase production to take advantage of high refining margins, the demand for crude oil purchases may also rise. Samsung Securities has raised its target price for S-Oil from 150,000 won to 165,000 won. The positive profitability of refiners is expected to control the pace of stabilization in international oil prices.

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