The United States arrested Venezuela President Nicolás Maduro and abruptly announced the normalization of local oil operations. As prospects for medium- to long-term increases in crude supply and declines in global oil prices gain traction due to this development, analysts say it could be a "tailwind" that materially improves profitability for Korea's refining industry.
Venezuela is the world's largest holder of crude reserves, with more than 300 billion barrels underground. But due to poor infrastructure, current output is only about 1 million barrels a day (1% of global supply), and even 80% of that volume is headed to China.
U.S. President Donald Trump said on the 3rd (local time) that U.S. oil corporations would be sent in to rebuild the broken infrastructure on the ground and ramp up crude production. The market is placing more weight on the possibility of long-term stabilization to the downside due to future "oversupply" of crude than on a short-term rebound in oil prices from geopolitical risks.
In the securities industry, there is a view that this situation will create new profit opportunities for refiners in Korea and the United States. If Venezuela's output increases and caps the rise in oil prices, U.S. refiners can procure cheaper Venezuelan crude and maximize cost reductions. In that case, Middle Eastern oil producers, pushed out of the U.S. market, would have no choice but to redirect supply to Asia, strengthening Korean refiners' bargaining power.
Hana Securities said that, after this development, preemptive action will be needed in the Middle East to prevent an oversupply of heavy crude to Asia and a decline in market share (M/S), and that Asia OSP (the official selling price for crude by Middle Eastern producers such as Saudi Arabia) is entering a broad downward cycle. A drop in OSP reduces refiners' cost burden and supports refining margin improvement.
In Canada's case, after expanding the TMX (Trans Mountain Expansion) pipeline in May 2024, the country has been increasing exports of heavy crude to Asia and announced plans for further expansion in November last year.
Yoon Jae-sung, a Hana Securities researcher, said, "If Venezuela joins in as well, Asian refiners will have a wide range of options for procuring heavy crude," adding, "We expect sizable benefits for Korean and U.S. refiners."
However, it is expected to take considerable time before Korean refiners see tangible benefits. Venezuela's oil production infrastructure has effectively collapsed after years of neglect, making a dramatic short-term output surge difficult. Even if large U.S. oil corporations immediately deploy technology and personnel, there is a high likelihood of at least a one-year lag before actual production increases and stabilization within global procurement systems.
Major Korean refining stocks S-Oil and SK Innovation climbed on expectations for earnings improvement through Oct.–Nov. last year but have stumbled over the past month (Dec. 2–Jan. 2), down 0.61% and 13.5%, respectively. As of 10:50 a.m., the stocks were up 5.60% and 2.40%, respectively, from the previous trading day on hopes for diversified crude sourcing.
Meanwhile, U.S. oil giants Exxon Mobil and Chevron are focusing on domestic investment through mergers and acquisitions (M&A) while concentrating on developing new overseas oilfields. Analysts say the latest U.S. airstrike in Venezuela and the announcement on normalizing oil operations bolster those corporations' business strategies.
Exxon Mobil shares rose intraday to $122.68 on the 2nd, setting a 1-year high, while Chevron and ConocoPhillips surged 2.29% and 3.30%, respectively.