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Recovery on the Horizon
A rise in market demand is expected to fuel growth of the oil refinery industry
Recovery on the Horizon
  • By matthew
  • January 15, 2010, 12:08
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The refinery margin is expected to pick up following a recovery in market demand and a slowdown in the expansion of refinery capabilities in Asian countries. While operating profit is also forecast to recover, the degree of recovery is limited. Meanwhile, a possible drop in the petrochemical business will adversely influence profitability.

Market demand for oil, which considerably decreased in 2009, is expected to turn around in 2010 as the global economy appears to be emerging from the mired recession. Furthermore, capacity-building competition among Asian economies in the refinery business is predicted to be less severe in 2010 than it was a year ago. Consequently, the refinery margin, which used to be exacerbated by the increasing refinery capacities of India and China, as well as the decreasing oil demand, is going to rebound. In addition, the reduced output by OPEC in response to the falling oil demand will push down the Dubai oil price, which had stayed higher than other oil types, which will in turn have a positive influence on the refinery margin of Korean refinery companies.

Refinery companies’ sales revenue, which took a nosedive in the aftermath of the oil price drop in 2009, will start to increase along with rising oil prices in 2010. Furthermore, their operating profitability, which had substantially fallen due to a weak refinery margin, is also expected to recover. However, the recovery in oil demand is estimated to fall short of that of 2008 levels. To make matters worse, Asian countries’ refinery capacity, which increased considerably in 2009, will continue to influence profitability, making significant growth in operating profitability unlikely.

As for the petrochemical business, which almost all refinery companies are operating, China’s large-scale domestic economy stimulus package that had propped up the Asian oil economy is starting to lose steam, undermining market demands. Meanwhile, a growth in supply due to the completion of expansion projects in the Middle East and China is expected to cause the sector to drop further, with some experts predicting these will negatively influence refinery companies’ operating profitability in 2010.