S-Oil, Rally Up Through Down Market... Secret to Soaring Refining Margins

S-Oil, Rally Up Through Down Market… Secret to Soaring Refining Margins

S-Oil (S-Oil) is continuing its upward rally amid a surge in refining margins amid global energy price instability.

Although the oil refining industry did not receive attention from the market due to the growth of eco-friendly alternative energy, it is attracting attention as an alternative in the downtrend based on the increased profit stamina following the recent boom in fossil fuels.

S-Oil finished trading at 19,000 won, up 2.83% from the previous trading day on the 12th, and also rose 1.38% on the 13th. As a result, the stock has risen nearly 30% in the past two months. Compared to the new low price recorded in December of last year (79,200 won), it has risen more than 87%, and the market cap has increased by more than 3 trillion won during this period.

The background for S-Oil’s growth amidst unstable energy prices is the surge in international oil prices due to the Ukraine crisis and the sharp increase in refining margins due to the endemic transition of Corona 19.

Russia, which invaded Ukraine at the end of February, has announced that it will stop supplying natural gas in response to economic sanctions. As a result, the price surge in the European Union (EU), which relies on about half of its usage, has spread around the world.

On March 8, when the West Texas Intermediate (WTI) recorded an all-time high of $123.7 per barrel on the New York Mercantile Exchange, S-Oil’s stock jumped more than 10% in a week. This is the effect of generating more than 500 billion won in profit as the crude oil held by S-Oil is included in the valuation gains as the oil price rises.

The fact that the oil refining industry, which had been evaluated as a dying industry due to the growth of alternative energy, has recently been attracting attention also had a positive effect on S-Oil. This is because major competitors have reduced refining facilities by promoting ‘decarbonization’.

ExxonMobil of the United States and Eneos of Japan are preparing to close their refining facilities in Australia and Japan, respectively, due to carbon reduction pressure, and Lyondell Basel, one of the world’s largest petrochemical companies, has announced that it will close its refineries in the United States by the end of 2023. . Jeon Yu-jin, a researcher at Hi Investment & Securities, said, “The oil refining industry is enjoying a structural boom within the mid- to long-term agenda of ‘carbon reduction’ due to the supply-demand imbalance deepened by the coronavirus pandemic and the Russian crisis.”

Meanwhile, according to FnGuide, a financial information company, S-Oil is expected to achieve sales of KRW 1.42 trillion and operating profit of KRW 719.8 billion in the second quarter of this year. This is an increase of 55% and 26%, respectively, compared to the same period last year.

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