A key measure of oil refining companies' profitability has tumbled in recent months due to surging crude prices, casting a cloud on South Korean refiners' third-quarter earnings, industry sources said Wednesday.

The benchmark Singapore complex gross refining margin plunged to the $3 per barrel range this month from $4.80 in July after hovering at $9.90 in January, according to the sources.


Singapore is the regional trading hub of the benchmark Dubai crude.

The margin is the difference between the total value of petroleum products coming out of an oil refinery and the cost of crude and related services, including transportation.

The GRM stood at $3.50 per barrel in the first week of August before dropping to $3.10 in the second week and inching up to $3.40 in the third week.

The reading hovers below the break-even point for the domestic oil refining industry. Usually, a South Korean refiner can generate a profit with a refining margin of more than $4.50.

Plunging cracking margins are feared to put a damper on third-quarter earnings of South Korean refining companies that fared better than anticipated.

"The current GRM is below the break-even point," an industry official said. "Should the refining margin maintain its current level, oil refiners will likely see their earnings drop sharply in the July-September period."

Industry watchers attributed the recent tumble in refining margins to rising oil prices, seasonally weak demand for petroleum products and a supply glut.

International oil prices have been on the rise in recent months, with three major benchmark products trading in the upper $40 per barrel range.

Analysts expected refiners' profit margins not to bounce back till the end of the current quarter. "South Korean oil refiners are likely to post lower-than-expected earnings for the third quarter due to rising crude prices, a fall in refining margins and a stronger local currency, said Hwang Yoo-shik, a searcher at NH Investment & Securities Co.

"Refining margins are expected to recover around late September, when the peak season for petroleum products starts and demand for regular maintenance and repairs rises."

The country's four major oil refiners -- SK Innovation, GS Caltex, S-Oil and Hyundai Oilbank -- racked up decent profits in the first half, bolstered by their better-than-expected sales and relatively high cracking margins. (Yonhap)