The four major domestic refiners (SK Innovation, GS Caltex, S-Oil, and HD Hyundai Oilbank) have struggled with operational losses in the third quarter due to decreased product demand caused by the global economic slowdown. The combined operating loss for the four companies in the third quarter exceeded approximately 14 trillion KRW. However, with a rebound in refining margins in the fourth quarter, there are expectations for improved performance.

According to industry sources on the 12th, the refining margin in Singapore for the last week of last year averaged $4.1 per barrel, reaching the breakeven point. This has led to the assessment that the worst period has passed. While the refining margin in the third quarter averaged $3.5 per barrel, falling short of the breakeven level of $4-$5 per barrel, there are signs of improvement moving forward.

Additionally, the adjustment of refining facility utilization rates is seen as contributing to the recovery in refining margins. Furthermore, there are expectations in the industry that the supply-demand situation will improve somewhat, as the net increase in refining capacity this year is expected to be lower compared to last year, while the amount of closed capacity is expected to rise.

International oil prices also showed stability in the fourth quarter with smaller fluctuations. West Texas Intermediate (WTI) fell below $70 in September, but as of the 10th, it had risen to $76.57.

Dubai crude prices slightly decreased in December compared to September, but it is anticipated that the sharp rise in the won-dollar exchange rate during this period will lead to a positive inventory effect. There are also opinions suggesting that with the recovery of inventory valuation gains and the improvement in diesel and kerosene margins, spot refining margins will improve.

The securities industry is also providing a positive outlook on the recovery of profitability for the four major refiners. S-Oil's fourth-quarter operating profit is expected to be approximately 178.9 billion KRW, a turnaround from the previous quarter's operating loss of 414.9 billion KRW. SK Innovation is forecasted to shift from a 3rd-quarter loss of 484.1 billion KRW to a small operating profit of 29.1 billion KRW in the fourth quarter.

The sharp rise in the won-dollar exchange rate has had a short-term positive effect on inventory. While a rise in the exchange rate is typically a negative factor for the refining industry, which imports all of its crude oil, it has had a positive impact on the valuation of previously purchased crude oil inventories.

However, from a long-term perspective, the sharp rise in the exchange rate is expected to be a burden on the industry. Due to the nature of payments being made in U.S. dollars, the industry is inevitably at a disadvantage as the exchange rate increases. The domestic refining industry imports more than 1 billion barrels of crude oil annually, and it is estimated that for every 10 won increase in the won-dollar exchange rate, the annual foreign exchange loss would increase by 100 billion KRW.

The dominant view is that the recovery of global economic recession, which is the fundamental cause of declining oil demand, will be key to restoring profitability. While the improvement in fourth-quarter performance is seen as a short-term factor, analysts believe it is difficult to remain optimistic about the outlook for this year.

The refining industry is focusing on accelerating new business ventures as a long-term strategy to overcome the recession. They plan to expand their non-refining business portfolio by focusing on sustainable aviation fuel (SAF), bio-based marine fuel, and immersion cooling, aiming to find new growth opportunities.

An industry insider stated, "While there is a possibility of improved performance in the fourth quarter compared to the previous quarter, there are many factors that could act as variables in the long term, such as the inauguration of Trump's second administration and global economic uncertainties." They added, "We will closely monitor the market situation and prepare for potential fluctuations that may arise in the future."

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