Since the implementation of the oil price cap, the price of regular gasoline has increased less than that of premium gasoline, which is not subject to the cap. This suggests that the price cap may have mitigated price increases. However, experts recommend establishing criteria for adjusting or ending the cap due to potential financial burdens and weakened supply incentives.
The Korea Institute for Industrial Economics and Trade (KIET) reported on October 23 that it compared price changes of regular and premium gasoline sold at the same gas stations to assess the price stabilization effects of the cap.
The report utilized daily price data from the Korea National Oil Corporation's Opinet, covering January 1, 2023, to September 16, 2026. The analysis focused on 1,512 gas stations that sold both fuel types daily during this period.
Researchers analyzed how the prices of regular gasoline, subject to the price cap, and premium gasoline, not subject to the cap, moved differently before and after the cap's implementation. By comparing prices at the same gas stations, they controlled for common factors such as international oil prices and exchange rates, as well as individual station characteristics.
Dividing the analysis by the timing of supply price cap adjustments, the relative price of regular gasoline compared to premium gasoline decreased by 45.75 won per liter during the initial implementation period from March 13 to March 26. In the second to sixth periods, from March 27 to June 26, it dropped by 165.51 won, and after the seventh period, from June 27 to September 16, it fell by 239.48 won. All estimates from these three periods were statistically significant.
This does not mean that the actual selling price of regular gasoline fell by these amounts compared to before the policy was implemented. Rather, it indicates that the price increase for regular gasoline was smaller or the decrease larger when compared to premium gasoline.
Changing the criteria for selecting gas station samples or starting the analysis in 2023 or 2024 still showed a downward trend in relative prices. Regionally, the same trend was observed across all 17 provinces during the second to sixth and seventh periods.
KIET interpreted these findings as evidence that the price cap may have buffered price increases or accelerated the reflection of cost reductions in retail prices.
However, interpreting the estimates as policy effects on regular gasoline requires additional assumptions. It presumes that there were no direct or indirect policy spillovers to premium gasoline and that average price changes for both fuel types would have been the same without the cap. Differences in costs, demand, and inventory for each fuel type could also affect the estimates.
The report emphasized the need to assess the costs associated with maintaining the price stabilization policy. It suggests using the price cap as a tool to buffer against sudden oil price shocks while also considering the burdens of long-term loss compensation, weakened supply and energy-saving incentives, and equity in benefits.
As indicators for determining an exit strategy, the report proposed monitoring international oil product prices, exchange rates, the extent to which the cap constrains actual supply prices, and how supply price changes are reflected in retail prices. It recommended publicly sharing the criteria and review timelines, and if stability conditions are met, comparing the risks of price spikes from abrupt removal with the costs of extending regulation to decide on adjustments or termination.
The report also advised avoiding situations where consumer burdens increase suddenly during the deregulation process. It suggested informing the transition path in advance, considering the time required for inventory turnover and retail price adjustments, and coordinating the timing of fuel tax adjustments or support reductions.
Lee Hong, a senior researcher at KIET, emphasized the need for targeted support for vulnerable households and essential transportation sectors, alongside providing price information and improving competitive conditions.
He further stressed the importance of comparing consumer savings based on sales volume with actual loss compensation and management costs over the same period, and monitoring price and supply conditions after the policy ends to assess its net benefits.
* This article has been translated by AI.
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