South Korea’s oil refiners have begun to cut back production as they face tougher times after losing 20 to 40 percent in income last year, as fueling and petrochemical demand takes toll from the worse-than-expected spread of new coronavirus (COVID-19).

Industry experts expect the COVID-19 outbreak would lead the demand for oil to fall more sharply this year than during the time of the past outbreaks of severe acute respiratory syndrome (SARS) and the Middle East Respiratory Syndrome (MERS).

According to the Korea Petroleum Association, the consumption of fuel shrank 11 percent in March 2003 when the SARS outbreak peaked compared to a year-ago period, with jet fuel consumption sliding at the fastest pace of 24 percent followed by gasoline at 20 percent and diesel 7.6 percent. Oil consumption also dipped by 2.6 percent and 3.2 percent on year, respectively, during the swine flu epidemic in 2009 and MERS in 2015.

A CEO of a local oil refiner said its factory operation has recently dropped to below 90 percent of full capacity due to the steep fall in demand for entire petroleum products including jet fuel, ship fuel, gasoline and diesel, after maintaining around 95 percent utilization before the COVID-19 outbreak.

Their exports have also been severely hit by the plummeting fuel demand in China that accounts for about 20 percent of exports of the local refiners, as many factories in the country shut down production to contain the spread of the virus. The shrinking oil consumption in China would deal a harsh blow to the Korean refiners as shipments to China take up 55 to 57 percent in their overall revenue.

The Organization of the Petroleum Exporting Countries (OPEC) revised down its global oil demand outlook for this year by 20 percent on Feb.12, citing the outbreak of the coronavirus in China as the “major factor behind this downward revision.”

The spread of the epidemic is adding woes to the Korean refiners that saw their profit tumble last year. Operating profit of SK Innovation dipped 39.6 percent to 1.27 trillion won ($1.05 billion) in 2019 from 2.1 trillion in 2018. GS Caltex also recorded a 28.7 percent on-year drop in operating profit last year to 879.7 billion won, Hyundai Oilbank 21 percent to 522 billion won and S-Oil 29.7 percent to 449.2 billion won.

By Noh Hyun, Song Gwang-sup and Choi Mira

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]