South Korea Maintains Oil Price Cap Despite International Price Drop

The South Korean government has announced its decision to extend the current price cap on petroleum products for another two weeks, a move that maintains the existing upper limits for gasoline, diesel, and kerosene. This decision comes despite a noticeable decline in international oil product prices over the past fortnight, reflecting a deliberate strategy by the Ministry of Trade, Industry and Energy.

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Considering the fluctuations in international oil prices, there was room to lower the maximum price by about 100 won for gasoline and 200 won for diesel, but we decided on the 4th maximum price after comprehensively considering energy saving and the impact on the national economy.

Officials cited the persistent uncertainty in global oil markets, exacerbated by the prolonged conflict between the US and Iran, as a primary reason for not lowering the price cap. Furthermore, the government emphasized the continued need for energy conservation. Nam Gyeong-mo, a policy aide at the Ministry, explained that while there was room to lower the cap by approximately 100 won for gasoline and 200 won for diesel, the decision was made after a comprehensive consideration of energy saving efforts and the broader impact on the national economy. This suggests a cautious approach, prioritizing stability and consumption control over immediate price reductions.

The government's price capping mechanism has demonstrably benefited consumers. Estimates suggest that without this intervention, prices at the pump could be significantly higher, with potential savings of up to 1000 won per liter for essential fuels like kerosene and diesel. This highlights the government's commitment to cushioning the impact of volatile global energy markets on households.

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The Middle East situation remains unstable, and international oil prices are high, so we are not considering abolishing it.

Regarding the possibility of abolishing the price cap system, Nam Gyeong-mo firmly stated that such a move is not under consideration due to the unstable geopolitical situation and high international oil prices. The government also reaffirmed its principle of compensating oil refiners based on their production costs, a process that involves verifying submitted cost data. However, the oil refining industry has expressed confusion over the government's calculation methods for production costs, indicating a potential point of contention.

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The government is calculating refiner losses based on each refiner's production cost, not international oil product prices, which is difficult to understand.