Eigenvalue Hits 'All-Time High'... Another Direct Blow After 'Urea Solution Crisis' for Cargo Trucks and Trucks

Limited Policy Options Like Fuel Tax Cuts and Strategic Oil Releases

"Fuel Prices Likely to Rise in Second Half Due to Russia Sanctions"
"Refiners' Pricing Power Limited... Supply Management Urgent Priority"

On the 11th, when the national average diesel price surpassed the gasoline price, fuel price information was displayed at a gas station in Seoul. Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Moon Chaeseok] Due to the prolonged supply reduction caused by Russia's invasion of Ukraine, diesel prices have soared to an all-time high. Truck drivers and freight vehicle operators have suffered a significant blow to their livelihoods, following last year's China-originated 'AdBlue shortage.' There are also forecasts that diesel prices will continue to rise in the second half of the year due to increased demand from the COVID-19 recovery.

According to Korea National Oil Corporation's Opinet as of 9 a.m. on the 12th, the average diesel price at gas stations nationwide reached 1,950.78 KRW per liter, setting a new record. The previous high was 1,947.75 KRW on July 16, 2008. Gasoline prices averaged 1,947.61 KRW nationwide. Following the previous day's 4 p.m. diesel price of 1,947.6 KRW per liter surpassing gasoline's 1,946.1 KRW for the first time in 14 years since June 2008, this trend continues.

Diesel prices for automobiles distributed at domestic gas stations have turned sharply upward since the beginning of the year. According to the Petroleum Corporation's Petronet, diesel prices at gas stations rose from 1,242.35 KRW per liter in January last year to 1,549.72 KRW in November, then seemed to stabilize at 1,453.53 KRW in January this year, only to rise again to 1,536.64 KRW in February and 1,826.93 KRW in March. Considering that Russia's invasion of Ukraine began on February 24, prices are expected to rise further in April and May.

The increase is analyzed to be caused by high demand but reduced supply due to the war. Europe relies on Russia for about 60% of its diesel imports. As Russian supply decreases, prices inevitably skyrocket. With the war likely to be prolonged and diesel demand expected to increase after the COVID-19 endemic phase, prices may rise further. In a 'supply reduction and demand increase' scenario, prices can only go up. According to foreign media, Russia is likely to engage in a prolonged war to control the Black Sea's ice-free ports.

Diesel vehicle workers such as truck drivers, bus operators, excavator operators, and ready-mix concrete truck drivers have been hit hard. Since fuel costs are unpredictable, more people are refueling 'little by little, frequently,' and some doubt whether refiners and gas stations are properly lowering prices. This situation makes it unlikely that President Yoon Suk-yeol's pledge to 'control inflation' will resonate with ordinary citizens. While fuel taxes were significantly reduced for passenger car owners, those using diesel face a dilemma where 'living costs for ordinary people' are overlooked.

On the 10th (local time), smoke rose from the Azovstal steel plant in Mariupol, a southern port city of Ukraine. About 1,000 Ukrainian soldiers made their last stand at the steel plant. It is reported that more than 100 civilians who could not evacuate remained. (Image source=Yonhap News)

The problem is that it is expected to be difficult to curb the rising diesel prices. Even after the government implemented the representative measure of 'expanding the fuel tax cut by 30%,' diesel prices have not been easily controlled. Including VAT, fuel taxes per liter are about 820 KRW for gasoline and 581 KRW for diesel, but with the government's 30% tax cut, these have been reduced to approximately 573 KRW for gasoline and 407 KRW for diesel. According to the industry, factors driving diesel price increases include global inventory reductions in the U.S., and the possibility of reduced diesel supply due to increased gasoline production after the U.S. summer vacation 'driving season' from June to August.

The refining industry expects diesel prices to continue rising in the second half of the year. They foresee prolonged war and continued sanctions against Russia even after the war ends. Government policy support options other than fuel tax cuts are limited, and releasing strategic reserves is also expected to have little effect. An industry official said, "Since refiners have limited pricing power, it is more important to manage supply disruptions than to push for price reductions."

However, the industry forecasts that a supply drop to 'zero' levels like last year's 'AdBlue crisis' is highly unlikely. Domestic refiners' production capacity supports supply, so although prices may be high, supply itself is not a problem, which is somewhat reassuring. It is also explained that Korean diesel prices are not expensive globally. According to the Korea Petroleum Association, as of the fourth week of last month, Korea's diesel price was 1,907 KRW per liter, about 26.7% lower than the OECD average of 2,416 KRW. This is about 79% of the OECD average at gas stations.

An industry official said, "In some European regions like Poland, diesel is unavailable at gas stations, and gasoline is limited to 20 liters per person, but Korea is not expected to face such supply shortages. Korean diesel prices are still about 26% cheaper than the OECD average, which is under 2,000 KRW per liter, so it is necessary to monitor price trends further."

This content was produced with the assistance of AI translation services.