The ‘golden diesel’ phenomenon, where diesel refining margins reach $30 per barrel, is leading the earnings recovery of domestic refining industry.
The performance of the domestic refining industry, which posted losses of around 1 trillion won (approximately $695 million) in the first half of last year, has rebounded in a ‘V-shaped’ recovery since the second half. The ‘golden diesel’ phenomenon, where diesel refining margins reach $30 per barrel, is leading the earnings recovery.
According to the refining industry on Jan. 2, the complex refining margins of domestic refineries surpassed $20 per barrel as of November last year. This marks the first time complex refining margins have exceeded $20 in about two years. Diesel refining margins, in particular, have risen sharply. Diesel refining margins exceeded $30, pulling up the overall average margins and becoming a major source of profit for domestic refineries, according to analysis.
The background behind diesel becoming a precious commodity lies in structural changes in the global diesel supply chain. Diesel has been the primary target of carbon neutrality policies in various countries due to its relatively high carbon emissions. Accordingly, refineries reduced new investments in diesel-focused production facilities and did not reinvest in aging equipment. When demand increased, the supply shortage situation became serious, driving up prices, according to analysis. Seasonal factors such as winter heating demand also contributed to the price increase.
The steady growth in jet fuel demand is another factor. Jet fuel and diesel have nearly identical boiling points and are called ‘middle distillates.’ When jet fuel production increases, the proportion of diesel production inevitably decreases.
The favorable refining margins driven by ‘golden diesel’ were fully reflected in the performance of the four major domestic refineries. S-Oil is observed to have posted operating profit close to 300 billion won in the fourth quarter of last year. SK Innovation also appears to have achieved operating profit in the mid-300 billion won range in the fourth quarter, driven by the overwhelming improvement in its refining division. GS Caltex and HD Hyundai Oilbank are estimated to have recorded operating profits of around 300 billion won and 200 billion won, respectively. The four refineries, which posted total losses exceeding 1 trillion won in the first half of last year, generated operating profits exceeding 1 trillion won in the fourth quarter alone.
The earnings improvement trend is expected to continue into the first quarter of this year. An industry official said, “The supply facility shortage problem driving up diesel prices is difficult to resolve in the short term,” adding, “The surge in power demand for operating artificial intelligence (AI) data centers will also raise prices across the energy sector.”
