Inventory Losses
Korean oil refineries’ inventory valuation losses are snowballing, as international oil prices are plummeting.
According to the Korea National Oil Corporation, the WTI futures price has already dipped below US$60 per barrel, and the Dubai crude spot price is about to do so too. Under the circumstances, oil refineries are concerned over inventory losses, which are caused by the time lag between crude oil purchases and the sale of refined products.
The losses for the fourth quarter of this year are estimated to be more than three times those of the previous quarter on the assumption that the current oil prices are maintained.
In the preceding quarter, SK Innovation recorded 190 billion won (US$173 million) in inventory loss, which was equivalent to 84 percent of the operating losses of the refinery division. S-Oil’s inventory losses amounted to 71 billion won (US$64.8 million) during the same period, and GS Caltex’s is estimated to be between 110 to 150 billion won (US$100 to $137 million). S-Oil and GS Caltex recorded 164.6 billion won (US$150.1 million) and 186.7 billion won (US$170.3 million) in operating losses in the third quarter, respectively.
These companies are struggling to reduce their stock these days. Their normal inventory levels are around 18 million barrels for SK Innovation, 15 million for GS Caltex, and 10 million for S-Oil.