NH Investment & Securities said on the 4th that S-Oil would likely see strong refining margins continue over the medium to long term. The firm maintained its investment opinion at Buy and raised its target price to 88,000 won from 74,000 won. S-Oil's closing price the previous day was 72,300 won.
Analyst Choi Yeong-gwang at NH Investment & Securities said, "Tight supply conditions and the resulting strength in refining margins will continue over the medium to long term," and added, "We raised our target price to reflect the share-price gains of global refiners amid a strong industry cycle."
Recently, the monthly average domestic complex refining margin rose from $5.8 in Aug. to $7.2 in Sept. and $10.5 in Oct. Production has been disrupted around the world due to technical defects, fires, Ukraine's strikes on Russia's refining facilities, and closures of aging plants, worsening supply conditions.
In addition, global oil demand next year is expected to increase 1.1% from a year earlier, while net refining capacity additions are projected to rise only 0.7%. As a result, tight supply-demand conditions are expected to persist over the medium to long term.
Meanwhile, the Organization of the Petroleum Exporting Countries (OPEC) and OPEC+, a group of major oil producers, agreed on the 2nd of this month to temporarily suspend the ongoing production increase in the first quarter of next year over concerns about an oversupply of crude.
Choi said, "Although the sharp drop in oil prices this year led to inventory valuation losses, next year the pace of declines is expected to slow, and solid refining margins will be fully reflected in results."