Following Seoul, Nationwide Gasoline Prices Near 2,000 KRW per Liter Amid 'Ukraine Invasion'... 8 Consecutive Weeks of Increase

National Average 1861.6 Won... Seoul Over 2000 Won, Nationwide Over 1900 Won Late in the Week

"Fuel Tax Cut < International Oil Price Increase, So Why Are Gasoline Prices Rising?" Criticism Also Raised

Due to the impact of Russia's invasion of Ukraine, international oil prices have risen, pushing the average gasoline price at Seoul gas stations above 2,000 won per liter on the 11th. A gas station in the city on the 9th. (Image source=Yonhap News)

[Asia Economy Reporter Moon Chaeseok] Due to the aftermath of Russia's invasion of Ukraine, international oil prices have surged sharply, causing domestic gasoline prices at gas stations to continue rising for eight consecutive weeks. In Seoul, prices have already surpassed 2,000 KRW per liter, and nationwide prices are expected to trade around the 2,000 KRW mark soon.

According to the Korea National Oil Corporation's oil price information service Opinet on the 12th, the gasoline sales price at gas stations in the second week of this month was recorded at 1,861.6 KRW per liter, up 97.6 KRW from the previous week. Although the weekly average price remains in the 1,800 KRW range, by the end of the week, Seoul's price exceeded 2,000 KRW per liter, and the nationwide average surpassed 1,900 KRW. On the previous day, the nationwide gasoline price was 1,938.8 KRW per liter, and Seoul recorded 2,020.2 KRW.

This is the first time in about 8 years and 5 months since the third week of October 2013 (1,902.5 KRW) that the nationwide gasoline price has exceeded 1,900 KRW per liter. If the nationwide price surpasses 2,000 KRW per liter, it will be the first record in about 9 years and 5 months since the fourth week of October 2012 (2,003.7 KRW). Diesel prices also rose by 118.7 KRW from the previous week to 1,710.0 KRW per liter. Domestic gasoline prices had been falling for nine consecutive weeks following the fuel tax reduction implemented on November 12 last year but turned to an upward trend earlier this year. Especially recently, with the Russia-Ukraine situation causing international oil prices to soar, the rate of price increase has accelerated further. The average domestic gasoline price was 1,810 KRW on November 11 last year, just before the fuel tax cut, but prices have already exceeded that level since last week. The weekly increases in gasoline sales prices over the past three weeks have been 21.4 KRW, 24.2 KRW, and 97.6 KRW, respectively, showing a growing trend.

Although international oil prices have somewhat paused this week, domestic fuel prices usually reflect international prices with a 2 to 3-week lag, so the upward trend is expected to continue for the time being. As high oil prices persist, the government extended the 20% fuel tax reduction measure for three months until the end of July. Additionally, it plans to consider expanding the fuel tax reduction rate depending on future oil price trends. If the reduction is increased to the maximum of 30%, gasoline prices would drop by 305 KRW per liter.

Some argue that domestic fuel prices have risen more sharply than the recent increase in international oil prices. They claim prices rise quickly but fall slowly. According to the refining industry, the gasoline sales price at domestic gas stations is determined by reflecting crude oil import costs, tariffs imposed when crude oil is brought into the country, various taxes on gasoline (fuel tax), and margins of refiners and gas stations.

It usually takes 2 to 3 weeks for refiners to import crude oil from overseas markets, refine it at domestic facilities, and distribute it to gas stations nationwide. Added to this are tariffs, about 3% of crude oil price (approximately 25 KRW per liter), a quasi-tax called the petroleum import surcharge (a fixed 16 KRW per liter), refining company distribution costs and margins totaling 88 KRW, which determine the 'pre-tax' gasoline sales price of refiners. Fuel tax, value-added tax, and others are then added. The 'post-tax' sales price (refiner gasoline supply price) thus determined is further added with gas station distribution costs and margins to calculate the final consumer sales price. This structure makes it difficult for consumer prices to drop immediately even when the government reduces fuel taxes. Since domestic gasoline prices tend to follow international gasoline prices with a 2 to 3-week lag, the recent sharp rise in international oil prices due to the Ukraine crisis has not yet been fully reflected in gasoline prices, supporting forecasts that prices will rise further for the time being.

Some civic groups raise doubts about the fact that gasoline prices have risen despite the fuel tax reduction and claims that price increases are due to changes in consumer purchasing patterns caused by oil price fluctuations. The Energy and Petroleum Market Monitoring Group analyzed oil price trends for four months after the government's fuel tax reduction in November last year and pointed out that the fuel tax cut amount (164 KRW) was nearly twice the increase in international oil prices (88 KRW). They claimed that domestic gasoline prices should have ultimately decreased by 76 KRW per liter but instead increased by about 100 KRW. Seo Hye Lee, head of the monitoring group's research office, said, "Domestic gasoline prices have risen excessively even considering the recent international oil price surge," and added, "The government needs to strengthen monitoring of refiners and gas stations." In response, a representative from the Korea Petroleum Association said, "The time lag for international oil prices to be reflected in domestic prices is inconsistent, so results may vary depending on the comparison period," and added, "In the mid- to long-term trend, domestic gasoline prices are proportional to international oil prices."

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