As difficult market conditions persist amid sliding crude oil prices and volatile refining margins, South Korean refiners posted diverging performances in the third quarter due to differences in their operational strategies.

Overturning market forecasts, SK Innovation, the country’s leading refiner, posted an operating profit of 363.9 billion won ($322.12 million) in the July-September period, up by 644 percent from the same period last year.


Hyundai Oilbank also recorded high third-quarter earnings at 100.5 billion won, up by 157.03 percent from the same period in 2014, effectively managing to remain profitable for 13 consecutive quarters.

Meanwhile, S-Oil saw an operating profit of 12.4 billion won in the third quarter -- an improvement from its earnings in the same period last year, yet hovering far below market predictions of around 50 to 60 billion won in third-quarter earnings.

GS Caltex, scheduled to release its third-quarter earnings in mid-November, is expected by analysts to have recorded relatively low profits as well.

The differences in the local refiners’ third-quarter earnings were perceived to be linked to variations in each firm’s diverging business strategies in response to market conditions.

“Amid difficult market conditions, SK was able to overcome falling crude prices and global oversupply by diversifying its crude imports and optimizing its refining operations,” said an SK Innovation official.

During the third quarter, the price of Middle Eastern Dubai crude -- of a lower grade compared to West Texas Intermediate or Brent benchmark crude from other regions -- matched or surpassed Brent prices at one point.

SK Innovation took advantage of this rare situation by swiftly reducing its reliance on Middle Eastern oil and instead imported more Brent crude from other regions like Africa, Europe and South America.

Moreover, as refining margins dropped to the unprofitable $4-5 range in July and August, SK cut production costs by importing more lower-cost crude -- remnants of crude oil following primary processing -- to be reprocessed into value-added petroleum products like gasoline and diesel.

Hyundai Oilbank took on a similar path by diversifying its crude supply and expanding its residual crude processing facilities in time for larger imports of low-cost crude, a move which reportedly allowed the firm to remain profitable in the third quarter.

On the other hand, S-Oil, owned by Saudi’s state-run oil company Saudi Aramco, imports its entire supply of crude from the Middle East, making it relatively more vulnerable to oil price fluctuations. Its residual crude reprocessing plants were also undergoing maintenance during the third quarter.

“S-Oil faced inventory valuation losses in July and August due to drops in global oil prices. Yet business recovered in September as demands and margins improved, enabling us to retain our profitability,” S-Oil said.

Meanwhile, analysts forecast the Korean refining sector will recover in the fourth quarter, thanks to improved refining margins and heightened energy demand during winter.

By Sohn Ji-young (jys@heraldcorp.com)