The Grammar of Oil Prices Has Completely Changed Why Is That? | Yoon Jaeseong, Hana Securities Research Center Senior Research Fellow

Summary

Yoon Jaeseong, Senior Research Fellow at Hana Securities, explains a structural shift in global oil refining that benefits Asian refiners. Record refining margins driven by Russian outages and low inventories are expected to persist, while a 20-year change in crude pricing (Dubai now cheaper, OSP negative) gives Asian refiners a cost advantage. This should narrow the valuation gap with US refiners. He recommends Korean refiners S-Oil, SK Innovation, and GS, with special emphasis on SK Innovation due to its booming lube base oil business and undervaluation.

• Global refining margins are at historic highs due to Russian refinery damage and low product stocks, expected to last at least a year.
• A structural shift has occurred: Dubai crude is now cheaper than WTI and Middle East OSPs turned negative, giving Asian refiners a cost advantage for the first time in decades.
• Asian refiners trade at 1x PBR vs 2-5x for US peers, creating room for re-rating.
• Korean refiners S-Oil, SK Innovation, and GS are directly recommended.
• SK Innovation gains an extra edge from its lubricant base oil business, which commands 50% global market share with margins at record highs.
• SK Innovation's lube business merger with batteries helps absorb losses, while the stock remains undervalued relative to S-Oil.