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S-Oil expects higher refining margins ahead of IMO 2020

S-Oil, South Korea’s third largest refiner, is anticipating improved refining margins in the region for the fourth quarter, ahead of the IMO 2020 global fuel sulphur regulation.

“For the fourth quarter, given a drop in high sulphur fuel oil prices and a rise in gasoil cracks, it seems shipping companies are disposing high sulphur fuel oil and stockpiling IMO-compliant fuels,” Cho Yong-kuk, treasurer of S-Oil, was quoted saying by Reuters on a call with analysts on Wednesday.

Demand for low sulphur fuels has picked up steadily this year as the shipping industry prepares to transit to a stricter regulatory environment with fuel sulphur content dropping to 0.5% from 1 January 2020 from the current cap of 3.5%.

S-Oil stated that refining margin is expected to improve on the back of robust demand growth in the region by 0.7m barrels per day for seasonal pickup along with inventory build-up in preparation of IMO implementation.

Following attacks on Saudi Arabia oil facilities in mid-September and the US sanctions on Iran and Venezuela, rises in freight rates and crude premiums have put pressure on margins of Asian refiners.

But Cho said the impact of higher freight rates on S-Oil’s business is contained as it mainly ships crude oil based on term contracts.