Oil Prices Surge on U.S. Iran Strike; Korean Refiners Rally

Shares of Korean refiners are climbing as international oil prices surge following the launch of U.S. military operations against Iran. After large-scale airstrikes by the United States and Israel, Iranian forces retaliated with ballistic missiles and drones targeting U.S. military facilities in the Middle East, while blockading the Strait of Hormuz—a chokepoint through which 20% of global oil shipments pass. The resulting spike in crude prices has triggered buying in domestic refinery stocks on expectations of improved earnings. Rising oil prices typically lead to better refining margins and higher operating profits for refiners.

According to Korea Exchange data, S-Oil was trading at 126,500 won as of 9:56 a.m. on March 3, up 15.00% from the previous session. S-Oil shares have gained more than 50% from late last year (83,000 won)—just before the U.S. surprise attack on Venezuela that ousted President Nicolás Maduro—and other refining-related stocks are showing similar strength. Kukdong Oil & Chemicals rose 18.87%, while Heungkoo Petroleum hit the daily upper limit with a 29.76% gain.

The rally in these stocks stems from geopolitical instability in the Middle East. The United States and Israel launched military strikes against Iran on February 28 Korea time. The large-scale airstrikes killed Iran's Supreme Leader Ayatollah Ali Khamenei and numerous other senior officials. Iran has continued to retaliate with ballistic missile and drone attacks on U.S. bases in the Middle East and Israel. Iran declared a blockade of the Strait of Hormuz, a strategic chokepoint known as the "global energy artery" through which approximately 20% of the world's seaborne oil passes. As the critical maritime route for crude and natural gas from Middle Eastern producers to Asia and Europe, supply disruptions and price spikes appear unavoidable.

Hana Securities issued a report on March 3 identifying the worst-case scenario as a prolonged Hormuz blockade combined with the conflict spreading to neighboring countries, projecting international oil prices could soar to $120 per barrel. On March 2 local time, Brent crude futures for May delivery closed at $77.74 per barrel on ICE Futures Exchange, up 6.7% from the previous session. Brent futures jumped as much as 13% intraday to $82.37 per barrel, marking the highest level in more than a year since January last year. West Texas Intermediate crude futures for April delivery closed at $71.23 per barrel on the New York Mercantile Exchange, up 6.3%. WTI futures also surged as much as 12% intraday to $75.33 per barrel, hitting the highest level since June last year.