The price of Dubai crude oil has remained above $90 per barrel since November 4, while domestic refinery costs have significantly decreased, raising interest in the potential end of the government's oil price cap.
According to industry sources on November 11, the average factory price from SK Energy, GS Caltex, and HD Hyundai Oilbank shows that gasoline has dropped by 231 won to 2,050 won per liter. Diesel prices decreased by about 78 won to 2,331 won, and kerosene fell by 85 won to 1,896 won.
International oil prices have shown a downward trend, with Dubai crude oil recently falling to the low $90 range after reaching a minimum of $105.30 and a maximum of $115.68 last month.
The government has maintained a price cap of 1,784 won for gasoline, 1,773 won for diesel, and 1,380 won for kerosene since October 17, with a decision on the next price cap expected on November 13.
Minister of Trade, Industry and Energy Kim Jeong-kwan has mentioned factors such as the end of the war, normalization of the Strait of Hormuz, and oil prices around $90 when discussing the potential end of the price cap. However, there are concerns that ongoing instability in the Middle East and the burden of domestic oil prices and consumer inflation may make an immediate end to the price cap difficult.
Some experts express worries about the financial burden of prolonging the price cap. The government has allocated 4.2 trillion won in special reserves to cover losses from the price cap, but the refining industry estimates cumulative losses of 7 trillion to 8 trillion won over the approximately seven months since the cap was implemented in October.
As the price cap continues, the burdens on the government, refineries, and gas stations are mounting. The government may need to secure additional funding to compensate for refinery losses. Refineries are facing a situation where high oil prices have increased crude oil import costs, yet supply prices remain capped, leading to ongoing losses. The refining sector argues that opportunity costs from diesel export restrictions, which were in place until the end of October, should also be considered for compensation.
Gas station operators are also expressing concerns about management uncertainties related to price decisions. With the upcoming price cap announcement, predicting future supply prices has become challenging, potentially disrupting inventory management and pricing decisions. Some gas stations report difficulties in placing orders due to supply limitations from certain refineries.
An industry insider stated, "The government implemented the strongest measures from the outset, placing burdens on both the government and the industry. The government needs to coordinate the scale of loss compensation, while refineries are trying to secure as much compensation as possible, leading to a widening gap in positions."
They added, "Self-employed gas station operators are also struggling with sudden changes in supply price systems, and the government's loss compensation costs ultimately fall on taxpayers. While it is uncertain when the price cap will end, we hope for a swift stabilization of market conditions."
* This article has been translated by AI.
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