South Korea's oil refiners, which returned to profit with more than 11 trillion won in first-half earnings, now face a more complicated outlook heading into the second half. Much of the first-half improvement came from a temporary factor — a spike in oil prices driven by armed conflict in the Middle East — meaning refiners face a heavier burden in the second half from negative lagging, the loss that occurs when oil prices fall between the time crude is purchased and when products are sold. In response, the refiners are accelerating efforts to build new energy businesses that can cushion against external shocks.
The combined first-half operating profit of Korea's four refiners — SK Energy, GS Caltex, HD Hyundai Oilbank and S-Oil — reached 11.08 trillion won ($8 billion), industry sources said on the 20th. That marks a striking turnaround from an operating loss of 1.3 trillion won in the same period a year earlier. By company, GS Caltex posted 4.19 trillion won, HD Hyundai Oilbank 2.76 trillion won, S-Oil 2.20 trillion won and SK Energy 1.93 trillion won — each earning roughly 2 trillion won.
One variable, however, is that much of the improvement stemmed from temporary inventory gains tied to the oil price surge. At SK Energy, first-half inventory-related gains came to about 1.34 trillion won, or 69% of total operating profit. At S-Oil, inventory gains of 760 billion won accounted for 35% of operating profit. HD Hyundai Oilbank's oil price and inventory-related gains reached 500 billion won in the second quarter alone, while a sharp rise in inventory gains also drove GS Caltex's strong second-quarter results.
Because refiners buy crude, refine it and then sell it with a time lag, swings in inventory profit and loss are inevitably large. In particular, when oil prices rise, inventory gains swell as cheaply purchased crude is reflected in costs while product prices climb. The industry estimates that inventory-related gains alone for the four refiners came to 3 trillion to 4 trillion won in the first half, given their facility sizes.
The problem is that international oil prices have swung sharply again in the second half. Dubai crude, which traded at $50 to $60 a barrel as recently as January, surged to $137.82 in March in the wake of the U.S.-Iran war that broke out in February, before sliding back to around $60 in June after news of a ceasefire agreement. It has recently moved between $70 and $80 as war risks resurfaced, though that is still about 30% below the March average.
A simple calculation based on the major refiners' first-half inventory gains suggests that each $10-a-barrel drop in oil prices would cause about 200 billion won in inventory losses per company. "External uncertainties are amplifying, and oil prices and other factors are fluctuating again," an industry official said. "The outlook for second-half earnings is also difficult, and concern is growing."
Amid this, the refiners are moving faster to strengthen the capabilities of new businesses that could become future revenue sources, using the liquidity secured from the recent windfall to prepare for earnings volatility. SK Energy is working to reduce its reliance on fossil fuels by increasing the share of eco-friendly fuel production. It recently built a dedicated facility for sustainable aviation fuel (SAF) at its Ulsan CLX complex, giving it an annual production capacity of 100,000 tons. HD Hyundai Oilbank has also moved to capture the biofuel market through early investment. Forming a consortium, it acquired Daekyung Oil & Terminal, the country's largest producer of biodiesel feedstock, hurrying to build a vertically integrated eco-friendly fuel operation spanning everything from feedstock sourcing to product manufacturing.
Competition to secure new growth engines linked to artificial intelligence (AI) infrastructure is also heating up. GS Caltex has developed immersion cooling oil for AI data centers and completed field testing, moving into the AI thermal management market. S-Oil has also begun field testing of immersion cooling technology for AI data centers, entering the cooling solutions market. On top of that, the refiners are concentrating capabilities on commercializing lubricants designed specifically for electric vehicles, in step with the growing adoption of EVs.
