South Korean oil refiners face a sharp earnings decline in Q2 2026 as crude prices collapsed following a Middle East war-driven spike, with some companies turning to losses from late May. S-Oil's Q2 operating profit consensus stands at 1.0966 trillion won, down approximately 11% from Q1's 1.2311 trillion won, while SK Innovation's oil business is forecast to earn 1.255 trillion won in Q2, a roughly 35% drop from an estimated 1.93 trillion won in Q1, according to Yonhap Infomax's compilation of securities firms' forecasts over the past month. The decline stems from refiners processing crude purchased at high war-time premiums—when Dubai crude exceeded $120 per barrel—into products now sold at depressed prices near $70 per barrel, triggering inventory losses and negative lagging effects. Industry observers note that Q1's combined 6 trillion won operating profit for the four major refiners included approximately 3 trillion won from temporary inventory gains and lagging effects tied to the price surge. Despite the ceasefire, cost pressures persist: Saudi Aramco's official selling price (OSP) premium for Asia averaged $14.8 per barrel over the recent three months compared to $1.26 per barrel in the same period last year, and risk premiums remain above $20 per barrel versus the usual $0.5 per barrel, according to Minister of Trade, Industry and Energy Kim Jung-kwan.
S-Oil and SK Innovation Report Q2 Earnings Decline
Yonhap Infomax's aggregation of securities firms' forecasts over the past month shows S-Oil's Q2 operating profit consensus at 1.0966 trillion won, down approximately 11% from Q1's 1.2311 trillion won. SK Innovation's oil business generated an estimated 1.93 trillion won in Q1 operating profit but is expected to earn 1.255 trillion won in Q2, a decline of roughly 35%. The downturn reflects the rapid retreat of international crude prices this month, with Dubai crude falling from over $120 per barrel post-war to around $70 per barrel recently on ceasefire expectations.
Some Refiners Turn to Losses from Late May
Refiners began feeding crude purchased at elevated war-time risk premiums into processing facilities from late Q2. The resulting products must now be sold at prices aligned with the collapsed crude market, generating inventory-related losses and negative lagging effects. Some companies with limited pre-war crude inventories turned to losses in their refining operations from late May, according to industry sources.
Saudi Aramco OSP Premiums and Transport Costs Remain Elevated
Saudi Aramco's official selling price (OSP) premium for Asia—added to benchmark crude prices—averaged $14.8 per barrel over the recent three months, compared to $1.26 per barrel during the same period last year, a more than tenfold increase. Uncertainty over free passage through the Strait of Hormuz after the ceasefire period and persistently high shipping and insurance costs add to refiners' cost burden. Minister Kim Jung-kwan stated that risk premiums, typically around $0.5 per barrel, still exceed $20 per barrel, meaning actual crude import prices remain near $95 per barrel even when international prices quote $75 per barrel.
Industry Forecasts Q3 Losses and Delayed Cost Normalization
Industry observers anticipate that inventory-related losses and negative lagging effects will intensify in Q3, making refining losses unavoidable. An industry official noted that a substantial portion of Q1's earnings came from temporary valuation gains tied to the price surge, and that the Q3 price decline will increase earnings pressure. The industry expects several more months before actual crude import costs return to pre-blockade levels, with cost relief potentially arriving around late Q3 when long-term contracts signed post-ceasefire begin delivering crude.
FAQ
Why did South Korean oil refiners' Q2 earnings decline after a strong Q1?
Refiners processed crude purchased at war-inflated prices—when Dubai crude exceeded $120 per barrel—into products sold at collapsed prices near $70 per barrel, generating inventory losses and negative lagging effects. Q1's strong performance relied heavily on temporary inventory gains and lagging effects from the price spike.
What cost pressures remain despite the ceasefire?
Saudi Aramco's OSP premium for Asia averaged $14.8 per barrel over the recent three months versus $1.26 per barrel last year. Risk premiums remain above $20 per barrel compared to the usual $0.5 per barrel, and shipping and insurance costs stay elevated, according to Minister Kim Jung-kwan.
When will refiners' costs normalize?
Industry sources expect several more months before actual crude import costs return to pre-blockade levels, with potential relief around late Q3 when long-term contracts signed post-ceasefire begin delivering crude.
