South Korean oil refining companies are facing the worst situation in which the price of gasoline is lower than the price of crude oil in spite of a drop in international crude oil price. In addition, they are staying alert with the operation of oil refining facilities in China speeding up.
Last week, the average per-barrel price of Dubai crude oil was US$29.01 whereas the price of gasoline as a processed product was US$27.98. In the last week of January this year, the international gasoline price per barrel had been about US$10 higher than the per-barrel price of Dubai crude oil. However, the former dropped more than US$40 last month and this month. With the global gasoline demand plummeting, more gasoline sale currently means more losses.
The oil refining margin, which was as high as US$10.1 in September last year, has dropped to below those companies’ break-even point of US$5. Last week, the margin reached negative US$1.9 per barrel, falling back to less than zero in about three months.
The recent spike in exchange rate is also adversely affecting them. They purchase crude oil on a U.S. dollar basis and, as such, a rise in exchange rate means more costs on their part.
The accelerating facility operation in China is likely to result in a further drop in product price. According to various media reports, the capacity utilization in Shandong jumped from 37 percent to 49 percent from the end of last month to last week. It is estimated to increase to 57 percent this week with the spread of COVID-19 showing signs of subsiding.