S-Oil’s Q2 Base Oils Profit Surges To Record High

S-Oil's base oils profit surged to a record high in the second quarter, as tight Group III supply drove margins to their strongest level since 2022.

Operating profit rose to 477.4 billion South Korean won ($333 million) in the three months to end-June, up 262% year on year and outpacing the 72% rise in sales to W1.30 trillion.

S-Oil is one of the world's largest producers of Group III base oils.

Its operating profit margin widened to 36.7%, from 22.6% in the first quarter to the highest since the third quarter of 2022.

Base oils accounted for just 9% of S-Oil’s total sales, unchanged from the first quarter, but 49% of total profit, up from 14% in the first quarter.

S-Oil expects the supply tightness behind those margins to persist, with Middle East disruptions continuing and little new Group III capacity before 2027.

Key Highlights

·         Base oils run rates fell to 94% in the second quarter from 97% in the first, the lowest since the fourth quarter of 2024, despite no scheduled maintenance.

·         S-Oil's refining unit accounted for 80% of S-Oil’s total sales, and 55% of its total profit, by comparison.

·         Europe Group III price premium over crude oil widened to more than $3,200/tonne so far in the third quarter, from more than $2,500/tonne in the second quarter and around $900/tonne in the first quarter.

Market Repercussions

Tight Group III supply and elevated base oils prices pointed to stronger profits at S-Oil and SK Enmove extending into the third quarter, adding to the need for more supply.

Any such relief is unlikely before 2027.

Group III+ supply from Chevron is expected in early 2027, while Luberef's Yanbu expansion has shifted into the first half of next year, leaving little additional Group III capacity available before then.

Planned Group III plant maintenance in the coming weeks would also tighten existing supply.

That left the market dependent on a recovery in Middle East supply in the short term. With disruptions now affecting both the Strait of Hormuz and the Red Sea, there's no sign of that recovery starting yet.