Warning of the "Real Oil Shock" Starting in May: "Refining Boom Is Over, Now It's Crude Oil's Turn" [Weekend Money]

"Supply Disruptions to Shift to Crude Oil from May
Negative Impact on Petrochemical Industry Profitability"

Amid the ongoing war between the United States and Iran, which has seen a greater price increase: crude oil or refined petroleum products? While refining supply shortages have been the primary issue until now, securities analysts are forecasting that the “oil shock” will soon shift to crude oil.

According to a recent report by Korea Investment & Securities, “In the two months following the outbreak of the war, the supply disruption of refined petroleum products was greater than that of crude oil.” Lee Chungjae, a researcher at Korea Investment & Securities, explained, “Prices for diesel and kerosene have soared to a record high of USD 292 per barrel, but crude oil prices have not risen as much, because the supply disruption for diesel has been more severe than for crude oil.” He added, “About 12 to 13 percent of the world’s oil refining capacity is located in the Gulf region, but the refineries in Saudi Arabia, Bahrain, and Iran have been shut down due to the war.” In the case of crude oil, although the Strait of Hormuz blockade has reduced supply by about 10 percent of global demand, measures such as the International Energy Agency’s (IEA) release of strategic reserves have meant that there has effectively been no disruption in crude oil supply over the past two months.

However, the report anticipates that as the war enters its third month, the situation will change. Rather than disruptions to refinery operations, crude oil supply shortages due to inventory depletion will become more pronounced. Lee estimates, “Over the past 60 days since the start of the war, crude oil supply disruptions have totaled an estimated 500 to 600 million barrels,” and adds, “Taking into account the 200 to 300 million barrels of oil stored in tankers and the IEA’s release of strategic reserves, from May onwards, we expect to see significant supply shortages arising from declining crude oil inventories.” Furthermore, there is no surplus global crude oil production capacity to compensate for these shortages.

As crude oil inventories decline, prices will rise. Lee predicts that while refining margins will return to pre-war levels, crude oil prices could increase by a similar magnitude. He explains, “Assuming that consumers have been able to withstand the high prices of refined products over the past two months without reducing demand, refiners are likely to compete aggressively to secure crude oil, even if it means sacrificing some of their record-high refining margins.”

From an industry perspective, Lee forecasts a negative impact on the profitability of the petrochemical sector. He notes, “Final demand for petrochemical products—such as automobiles, tires, home appliances, furniture, and textiles/apparel—can be delayed depending on price, whereas it is relatively difficult to delay purchases of refined petroleum products.” He adds, “Refiners’ margins may not fall below pre-war levels even if crude oil prices rise, but the profitability of Asian petrochemical companies that use naphtha as a feedstock could deteriorate significantly.”

This content was produced with the assistance of AI translation services.