November 2, 2017 / 2:17 AM / a year ago

UPDATE 1-S.Korea's SK Innovation sees favourable refining margins on tight supply

* Says market conditions to tighten on lower stocks, seasonal demand

* Sees next year’s global demand outstripping new global capacity (Adds comments from conference call, detail)

By Jane Chung

SEOUL, Nov 2 (Reuters) - SK innovation, which owns South Korea’s top refiner SK Energy, said on Thursday it expects favourable refining margins to continue as market conditions tighten on falling global inventories and strong demand.

The company’s outlook was in line with a forecast by S-Oil, the country’s third-largest refiner, which said on Monday that refining margins were likely to remain strong for the next two years on tight supply.

“Given seasonal demand for heating oil and tight supply conditions, favourable refining margins are expected to continue for a considerable time,” Cha Jin-seok, head of SK Innovation’s finance division, said on a call with analysts.

Refining margins were expected to remain healthy for the rest of this year due to planned refinery maintenance shutdowns in autumn, said Lee Yun-hi, head of SK Energy’s corporate planning office.

“We expect refining margins to stay favourable next year given that new global refining capacity is likely to be 740,000 barrels per day (bpd), while solid demand is expected at 1.4 million bpd on the global economic recovery,” Lee said.

SK Innovation said in an earnings statement that global inventories of refined products are also expected to decline.

​The company posted an operating income of 963.6 billion won ($866.6 million) in the three months to September, more than double the same period a year ago, supported by higher oil prices and global refinery outages following Hurricane Harvey.

SK Innovation said on Wednesday it would invest about $900 million to build a new desulfurisation unit in its 840,000 barrels per day (bpd) refinery in the southeastern city of Ulsan by 2020, in a bid to produce cleaner fuels.

The new unit is planned to start commercial operation in July 2020, Cha said.

SK Innovation said its crude distillation units in Ulsan and Incheon ran at 94 percent on average in the third quarter, up from 81 percent from the previous quarter, according to the statement. ($1 = 1,111.9300 won) (Reporting By Jane Chung; Editing by Richard Pullin)

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