South Korea's S-Oil sees IMO 2020 stock build supporting refining margins

SEOUL (Reuters) - S-Oil 010950.KS, South Korea's third-largest refiner, said on Wednesday it expects refining margins to strengthen in coming quarters, supported by demand for new low-sulfur marine fuels and the U.S. driving season.

The International Maritime Organization’s (IMO) new rules on marine fuels are set to take effect from January 2020, reducing the sulfur content of fuel oil to 0.5% from the current 3.5% to combat pollution.

S-Oil, whose top shareholder is Saudi Aramco, said suppliers had already started building stocks of the low-sulfur fuel and the trend is expected to support margins in the third and fourth quarters.

The current quarter should also see solid demand for the U.S. summer driving season, it said in an earnings statement.

“Refining margins will strengthen from the fourth quarter, driven by inventory build-up demand for compliant fuels in advance of IMO 2020,” S-Oil said.

The refiner was hurt by low margins in the second-quarter, reporting an operating loss of 90.5 billion won ($76.8 million) for the April-June period, compared with an operating profit of 403 billion won a year earlier.

Asia's benchmark Singapore refining margins DUB-SIN-REF - the profits from processing a barrel of Dubai crude into refined products - have jumped since late June, reaching their highest since September 2017 at $9.37 a barrel in mid-July.

Singapore sales of low-sulfur marine fuels hit a record 299,000 tonnes in June, up by 10% from the previous high of 272,000 tonnes in May and more than double the 140,000 tonnes sold in June last year.

S-Oil, which runs a 669,000 barrels-per-day (bpd) refinery in the southeastern city of Ulsan, also said it plans to shut down its No.1 residue fluid catalytic cracker (RFCC) for maintenance in the third quarter.

The refiner’s gasoline making unit, its 73,000-bpd RFCC, would be offline for maintenance from September to October, according to sources familiar with the matter.

Shares of S-Oil edged up 0.8% by 0140 GMT after the earnings announcement, while the wider market .KS11 was 0.2 % higher.

Reporting By Jane Chung; additional reporting by Sangmi Cha; editing by Richard Pullin