Battery losses continue, while ESS and North American expansion remain long-term focus
Growing geopolitical tensions in the Middle East and continued volatility in global oil markets are drawing renewed attention to SK Innovation’s refining and energy business outlook.
The company posted strong first-quarter earnings earlier this year as rising crude oil prices boosted profitability in its refining operations. Industry analysts, however, say future performance could remain highly sensitive to geopolitical developments and fluctuations in energy prices.
SK Innovation reported consolidated operating profit of 2.16 trillion won for the first quarter, returning to profitability compared with the same period a year earlier. The earnings improvement was largely driven by increased inventory-related gains following the surge in global oil prices after escalating tensions in the Middle East.
Its refining subsidiary SK Energy alone recorded approximately 780 billion won in inventory-related gains during the quarter.
In the refining industry, companies typically experience a time gap between crude oil procurement and refined product sales due to transportation, storage and refining processes. During periods of rising oil prices, refiners can benefit from lower-cost crude purchased earlier being reflected in production costs — a phenomenon commonly referred to as the “lagging effect.”
Dubai crude prices averaged around $128 per barrel in March, significantly higher than the previous quarter’s average. As refined product prices climbed while input costs remained relatively lower, refining margins improved sharply.
Industry observers caution, however, that some of the recent earnings gains may prove temporary if oil prices stabilize or decline in the coming months.
SK Innovation has also identified geopolitical risks in the Middle East, crude supply concerns and developments surrounding the Strait of Hormuz as key variables affecting second-quarter performance.
Despite ongoing uncertainty, analysts expect refining and lubricant businesses to maintain relatively solid profitability in the near term. SK Enmove, the company’s lubricant business unit, is seen as benefiting from improving spreads amid supply disruptions and feedstock issues affecting competitors.
Meanwhile, the battery business continues to face challenges. Battery subsidiary SK On posted an operating loss of 349.2 billion won in the first quarter, reflecting slowing electric vehicle demand and intensifying global competition in the battery sector.
The company said it plans to focus on long-term profitability improvements through expansion in the North American energy storage system (ESS) market and stabilization of its European production bases. Market attention is also growing around rising ESS demand tied to U.S. energy infrastructure investment.
SK Innovation E&S, the company’s energy business unit, continues to provide relatively stable earnings through its LNG and power-related operations, helping offset volatility in refining and battery businesses.
Industry analysts say SK Innovation’s future performance will likely depend on a combination of oil price movements, geopolitical developments and the pace of profitability improvement in its battery operations.
