Korea Investment & Securities Co. said on the 6th that S-Oil's earnings are expected to improve as global refining demand expands and refining margins rise due to the fallout from the war. Korea Investment & Securities Co. maintained its Buy rating on S-Oil and raised its target price to 150,000 won from 140,000 won.
According to Korea Investment & Securities Co., S-Oil is expected to post revenue of 37 trillion won and operating profit of 3.2 trillion won this year. The outlook reflects higher international oil prices and strong refining margins, an improved paraxylene (PX) spread (the gap between product price and cost), and steady revenue growth in the base oil segment.
Lee Chung-jae, an analyst at Korea Investment & Securities Co., said, "This year's operating profit is expected to come in at 3.2 trillion won, similar to the level during the Russia-Ukraine war in 2022," and added, "Refining margins showed extreme strength in March due to the Middle East situation. While it will be difficult to sustain margins at current levels, tight refining supply and demand will persist."
Global refining demand is also expected to surge going forward. This is because countries including China are continuing to build their oil stockpiles and a U.S.-Iran war has broken out.
The analyst said, "Last year, China significantly increased crude oil imports but did not increase exports of refined products," and noted, "According to foreign media, the Chinese government instructed refiners to export products such as gasoline and diesel. If China's moves spread to other countries, global refining demand this year could rise beyond the expected 1 million barrels per day (bpd)."
U.S. exports of refined products are also expected to decline. The analyst said, "U.S. shale oil production is expected to fall this year," and added, "To maintain utilization rates, the United States will need to increase oil imports or reduce exports."