Fuel prices are displayed at a gas station in Seoul, Friday. Yonhap

By Park Jae-hyuk

Korea's four largest oil refiners showed a sharp decline in their third-quarter operating profits, raising questions about the possibility of further deterioration in their profitability during the fourth quarter, according to industry officials, Sunday.

The sum of their third-quarter operating profits was 2.7 trillion won ($2 billion), down 63.7 percent from the previous quarter.

In particular, S-Oil's operating profit fell 70.3 percent from the previous quarter to 511.7 billion won, while SK Innovation's declined 69.8 percent to 704 billion won. GS Caltex, which posted 817.7 billion won in operating profit, also showed a 61.6-percent quarter-on-quarter decline. Hyundai Oilbank posted 702.2 billion won in operating profit, down 48.8 percent from the previous quarter.

They were able to avoid a sharper decline in their operating profits, thanks to their earnings from sales of lubricant, which tends to show stable demand, compared to gasoline and diesel.

"Despite the slow demand after the peak summer season, our lubricant business remained solid," an S-Oil official said.

During the first half of this year, domestic refiners were urged by some lawmakers to pay taxes on their windfall gains, as they enjoyed handsome profits amid the economic slowdown.

Falling international oil prices and refining margins, however, worsened their operating profits.

Analysts expect Korean refiners to start showing an improvement in their operating profits during the fourth quarter, as the decline in global oil prices and refining margins has been restrained, due to the OPEC+'s decision to cut oil production and the rising demand during the winter.

"Gasoline margins, which had been very sluggish, bounced back," Hana Securities analyst Yoon Jae-sung said. "The shortage of diesel could lead to a shortage of other types of oil. In order to brace for the highly probable energy crisis during this winter, I would recommend investors to buy shares in oil refiners."

Daishin Securities analyst Wee Jung-won also mentioned a potential increase in oil demand depending on whether China eases its strict measures to control the spread of COVID-19.

However, the lingering economic slowdown and China's increased exports of petroleum products are feared to have negative impacts on the fourth-quarter earnings of the Korean refiners.