South Korean four refining majors who each finished their first quarter in worst-ever loss of near $1 billion have turned more hopeful of amelioration in the second quarter amid sharp pickup in fuel consumption from resumed business and industrial activities across the globe.

Local refineries saw huge inventory-related losses in the first quarter ended March this year due to a plunge in crude prices, with Dubai crude, the benchmark of Asia, plummeting $64 per barrel in January to $33 in March and $20 in April.

Sudden crude price fall causes refiners inventory losses as it takes about one month for them to produce petroleum products after buying the raw material. Out of the combined losses of 4.3 trillion won ($3.5 billion) generated by the Korean major refineries in the first quarter, 3 trillion won was related to inventory losses.

International oil prices have rebounded sharply since last month after major oil producing countries agreed to cut output in April, raising hopes that profit margin of refineries would significantly improve in the second quarter.

“If the crude prices maintain the current level until June, the inventory losses (at local refiners) would be narrowed,” an industry official said.

There are also signs of recovery in demand for petroleum products as many countries have begun to lift lockdown restrictions. Domestic consumption for petroleum products except for jet fuel in May recovered to around 90 percent of the normal levels. Demand picked up in the world’s two biggest oil consuming countries – the U.S. and China.

The escalating conflicts between the U.S. and China over trade and political issues and the lengthening pandemic still pose downside risks.

Local oil refineries kept seeing their refining margin go down for the 11th consecutive week as the demand has yet to normalize.

By Won Ho-sup and Choi Mira

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