Fuel prices drop below 1,900 won; Hormuz normalization delay a factor

The average price of gasoline and diesel in South Korea has dropped to below 1,900 won per liter, a change attributed to the government's reduction of the oil price cap.

The impact of the government's decision to lower the supply price cap for refined oil products by 150 won per liter, effective from June 27, is beginning to be reflected at domestic gas stations. The average gasoline price fell to 1,970.64 won per liter as of 1 p.m. on June 29, down 16.93 won from the previous day. Diesel prices also decreased by 16.68 won to 1,961.64 won.

Industry experts anticipate further price reductions as lower international oil prices and the adjusted price cap are sequentially incorporated into the market. Gas stations with lower existing inventory or higher sales volumes are expected to see the reduced supply prices reflected first. The industry predicts that the national average retail prices for gasoline and diesel could fall into the 1,800 won range within approximately two weeks.

However, the extent of future price declines remains uncertain. Recent attacks targeting cargo ships and oil tankers near the Strait of Hormuz have slowed maritime traffic, causing international oil prices to rebound slightly. Brent crude rose 0.7% to $72.51 per barrel, and West Texas Intermediate (WTI) increased by 1.0% to $69.94 per barrel on June 29.

The International Energy Agency (IEA) warned in a report released on June 22 that global oil inventories have decreased by an average of 3.8 million barrels per day since the conflict began. The IEA cautioned that the international oil market could enter a "risk zone" in July-August if passage through the Strait of Hormuz does not fully normalize. The ongoing instability in the Middle East and international oil price fluctuations will influence the government's next price cap adjustment.