iM Securities reaffirmed its buy rating and target price of 170,000 won on S-Oil (KRX: 010950) on 4 August, arguing that tight supply-demand conditions in refined products are becoming entrenched regardless of crude-oil price swings.
S-Oil reported operating profit of 965 billion won for the second quarter of 2026 (April–June), down 22% from the previous quarter but broadly in line with the market consensus of 955.1 billion won.
Performance varied sharply across business segments. The refining division posted operating profit of 532.4 billion won, a 49% quarter-on-quarter decline, largely because the first quarter had benefited from substantial inventory gains that inflated the comparison base. Even so, the result beat iM Securities' own estimate of 456 billion won by 17%, as refining margins remained robust.
The petrochemicals division swung to a loss of 44.8 billion won. Spreads on paraxylene (PX) — the segment's most profitable product — weakened, while scheduled maintenance reduced throughput volumes and the inventory gains booked in the first quarter did not recur.
The standout performance came from lubricants. Divisional revenue surged 77% quarter-on-quarter to 1.3 trillion won, while operating profit leapt 187% to 477.4 billion won — an all-time high for the unit. The catalyst was a near-tripling of base-oil spreads, from roughly $50 per barrel in the first quarter to $140 per barrel in the second.
iM Securities argues this is not a transient phenomenon. Middle Eastern producers account for about 30% of global Group-3 base-oil output, and supply disruptions there are ongoing. Refiners are simultaneously diverting capacity towards diesel production, squeezing base-oil supply from two directions at once.
The brokerage also contends that the broader refining recovery rests on structural rather than cyclical foundations. Crude distillation capacity damaged by conflicts in Russia and the Middle East stood at 5m barrels per day as of late July — equivalent to roughly 5% of global oil demand. China and Russia, both major exporters of refined products, have extended export restrictions to protect domestic supply. Global diesel inventories are near historical lows, and pre-winter restocking demand could tighten the market further.
On the cost side, iM Securities sees a potentially favourable shift in crude procurement. With Iraq reportedly considering following the UAE in withdrawing from OPEC, cartel cohesion is weakening. As supply from the United States, the UAE and Russia rises, Saudi Arabia may cut its official selling prices (OSPs) to defend market share. Because S-Oil sources most of its crude from Saudi Arabia, any OSP reduction would translate directly into lower feedstock costs.
Incorporating these factors, iM Securities projects S-Oil's full-year 2026 revenue at 43.935 trillion won and operating profit at 3.589 trillion won. That would represent a more than fifteenfold increase in operating profit relative to 2025 (when revenue was 34.247 trillion won and operating profit just 236 billion won). Net profit is forecast at 2.296 trillion won, compared with a meagre 177 billion won in 2025 — a dramatic transformation in earnings power within a single year.
Investors are also watching the scope for dividend recovery. Assuming a payout ratio of 20%, iM Securities estimates a dividend per share of 4,000 won for 2026, which would be the highest since 2022. Once the capital-intensive Shaheen Project — a major downstream expansion — is completed in 2027, the payout ratio could rise to 35%, pushing the dividend to 4,800 won per share. S-Oil averaged a 35% payout ratio in 2018–19, but heavy capital expenditure and deteriorating earnings forced a sustained reduction between 2020 and 2025.
That said, the optimistic outlook carries meaningful risks and reflects the view of a single brokerage. A sharp fall in crude prices could flip inventory gains into losses running into the hundreds of billions of won — as demonstrated in 2025, when inventory write-downs drove a 157 billion won annual operating loss in the refining division alone.
The petrochemicals division remains a drag. Persistent weakness in PX spreads has led iM Securities to forecast a divisional operating loss of 182 billion won for 2026. Whether the Shaheen Project's newly commissioned assets can be nursed into profitability is a question that will take time to answer. And while prolonged geopolitical tensions currently support refining margins, any rapid de-escalation could quickly normalise supply and compress those margins.
As of 4 August, S-Oil's shares traded at 121,700 won, implying upside of roughly 39.7% to iM Securities' target. The stock has gained 10.4% over the past month but fallen 9.5% over three months, reflecting considerable volatility. Its 52-week range spans 57,800 won to 151,200 won — an exceptionally wide band that underscores the uncertainty investors face.