Navigating the freight shock – S-Oil most protected, producer crude discounts offer relief

S-Oil (Buy, on CL) screens as the most protected refiner in the region. While Asian refiners face great pressure from the recent surge in crude transportation costs, our channel checks suggest varying impacts at the company level. S-Oil screens as the most protected refiner in the region in our coverage, largely due to its relatively low exposure to spot freight rates and its strategic relationship with Saudi Aramco. Headline freight shock could be partially offset by producer crude discounts. Refiners are actively seeking offsets through steeper crude discounts, while upstream producers appear willing to widen discounts in exchange for higher volume commitments. Logically, the current macro setup provides an initial buffer for refining margins. Significant infrastructure damage has physically constrained the global refining capacity, which has tightened refined product inventories relative to crude, contributing to a comparatively slower recovery in product flows.