"Rocketing Up, Feathering Down"... Is There Really No Solution to Soaring Fuel Prices? [Digging Energy]

Specialist Report
Hundreds of Won per Liter Increase... Asymmetric Price Adjustments Under Scrutiny Again
Supply Prices Set Based on Singapore Spot Market
Post-Settlement Transaction Practices Fuel Uncertainty and Sharp Price Hikes
Exclusive P

Amid rising international oil prices due to the war between the United States and Iran, domestic gas station fuel prices are also increasing daily. At a gas station in Yongsan District, Seoul, the price displayed on the 6th, just one day after the 5th (right photo), shows gasoline up by 20 won and diesel up by 50 won. Photo by Dongju Yoon

"There are times when petroleum product prices at gas stations rise by more than 200 won per liter in just one day. No matter how much people say that money is the root of all evil, this seems excessive."

As gas station prices soared following the U.S.-Iran war, President Lee Jaemyung delivered a strong reprimand during a Cabinet meeting on the 5th. Afterward, the government launched an intensive joint investigation targeting refiners and gas station operators. It also announced the anticipated implementation of a maximum oil price system for the first time in 30 years.

Kim Jeonggwan, Minister of Trade, Industry and Energy, also stated at a meeting with the refining industry on the 9th, "Some gas stations reportedly raised gasoline prices by more than 500 won and diesel prices by more than 700 won within a week," and pointed out, "In particular, refiners have reflected international oil price increases in domestic prices within a day or two, which has only strengthened the public perception that prices rise quickly but fall slowly."

Every time volatility in international oil prices increases, the asymmetry in domestic petroleum price adjustments becomes a major issue. When the Russia-Ukraine war broke out in 2022, petroleum prices surged, resulting in massive operating profits for refiners. Conversely, when international oil prices fell, the speed of price reductions for domestic petroleum products failed to keep up. This phenomenon has drawn criticism for moving "like a rocket when rising, but like a feather when falling."

Refiners and Gas Stations Blame Each Other

The same is true this time. The U.S. and Israel launched an airstrike on Iran on the 28th of last month. It takes about 20 days for Middle Eastern crude oil to arrive in Korea, and after refining, it takes several more months to reach the market. However, refiners and gas stations raised prices for petroleum products such as gasoline, diesel, and kerosene just a day or two after the outbreak of war.

According to data obtained by Assemblyman Heo Sungmu of the Democratic Party of Korea, SK Energy notified gas stations via text message on March 3 that, starting March 9, gasoline would increase by 117 won per liter, kerosene by 241 won, and diesel by 221 won. The next day, another message was sent revising the increases to 179 won for gasoline, 375 won for kerosene, and 324 won for diesel. On March 5, the increases were changed again to 210 won for gasoline, 1,017 won for kerosene, and 445 won for diesel.

As international oil prices rise, fuel prices at gas stations nationwide are also increasing. On the 9th, cars lined up at the Mannam Square gas station in Seocho-gu, Seoul, known for its cheap fuel prices, trying to refuel before prices go up further. Photo by Jinhyung Kang

As petroleum product prices skyrocketed, public dissatisfaction grew. Even the Blue House expressed concern, but the situation did not improve.

The refining industry has differing views on the surge in oil prices. Gas station operators cite the supply prices set by refiners as the main cause. The Korea Oil Station Association stated in a press release on the 6th, "Gas stations are retail distributors that purchase petroleum products from refiners or distributors for sale," adding, "The primary reason for price increases is the rise in supply prices from refiners." This was in rebuttal to claims that gas stations were reaping excessive profits by raising prices.

The association further explained, "Fuel taxes account for a significant portion of petroleum product prices, and after excluding the supply price from refiners (including taxes), the distribution cost share for gas stations is only about 4–6 percent. Considering card fees and operating expenses, the actual price range that gas stations can adjust is very limited."

Refiners, on the other hand, point to panic buying by consumers as a main factor. As gas station inventories quickly ran out, the tank replacement cycle accelerated, and price increases were more quickly reflected in this process.

A representative from the Korea Petroleum Association explained, "Due to panic buying, gas stations had to purchase at supply prices that already reflected international oil prices," adding, "There may also be cases where price increases are preemptively reflected in the sales price in anticipation of future supply price hikes."

Reflecting International Oil Prices: Quick to Rise, Slow to Fall

The reason opinions differ between refiners and gas station operators is that oil prices are not determined by just one or two factors. Consumers go through a complex process before actually purchasing petroleum products.

Refiners import crude oil from overseas, refine it, and then either export it or sell it on the domestic market. When refiners supply products to gas stations through distributors, the gas stations add a margin and then sell to consumers. The price paid by consumers includes fuel taxes.

There is one important point consumers should not misunderstand: the supply price set by refiners is not based on the production cost of importing and refining crude oil, but rather on the price of petroleum products traded on the international market.

In Korea, the Singapore spot market (MOPS) price is used as a benchmark. Singapore is the energy hub of Asia, and trading prices in this region serve as a barometer for the Asian energy market. Domestic refiners determine the supply price to distributors or gas stations by applying the exchange rate to the Singapore trading price.

Therefore, even if Middle Eastern crude oil does not actually enter Korea, a sharp rise in international oil prices can cause the supply price from refiners to jump suddenly. The recent supply price hikes by refiners have this background.

Even when international oil prices fall, the slow reflection in domestic supply prices is believed to be because refiners use an average price over a set period to avoid losses. A representative from the Petroleum Association explained, "When price volatility is large, it is common to use a monthly or weekly average price to prevent losses. However, the specific methods each company uses are unknown."

"Opaque Transactions... Post-Settlement Practices Should Disappear"

The practice of post-settlement transactions between refiners and gas stations has also been cited as a recent cause of soaring petroleum product prices.

The post-settlement system refers to initially purchasing petroleum products at the price presented by the refiner, and later settling the final amount after a certain period. The four major refiners in Korea—SK Energy, S-Oil, Hyundai Oilbank, and GS Caltex—mostly operate under this post-settlement system. For gas stations, this means they do not know how much they will eventually be reimbursed through post-settlement. As a result, during periods of sharp international oil price increases, there is a tendency to preemptively set prices higher.

Deputy Prime Minister and Minister of Economy and Finance Koo Yoon-chul is visiting a gas station in Yuseong District, Daejeon, on the 6th to inspect the situation. 2026.3.6 Yonhap News Photo by Yonhap News

The Korea Fair Trade Commission issued corrective orders to the four major refiners in 2008, stating that setting or changing transaction conditions in a way that disadvantages gas stations through post-settlement constituted an "unfair practice."

However, S-Oil filed a lawsuit in opposition, and in 2013, the Supreme Court ruled that "the post-settlement practice is not an unfair act." The court found that the practice did not hinder fair trade or cause gas stations to suffer disadvantages as a result.

Despite the Supreme Court’s ruling, many in the refining and gas station industries still believe that the post-settlement system should be abolished.

Independent lawmaker Paek Jongmin said, "In a market, prices should be set publicly and transparently according to supply and demand, but that is not how the oil market currently operates. It is a very strange way of doing business when gas station owners do not know the actual supply price at the time of receiving fuel and the final price is settled later."

Is There No Problem with the Four Major Refiners’ Monopoly and Exclusive Purchasing Practices?

Some argue that the domestic market situation, where the four major refiners have a monopoly, needs to be improved. The combined market share of SK Energy, S-Oil, Hyundai Oilbank, and GS Caltex exceeds 90 percent domestically. Gas stations contract with refiners based on an exclusive purchasing system, under which they purchase petroleum products only from a single refiner.

This exclusive purchasing system can limit the ability of individual gas stations to negotiate with multiple suppliers and purchase petroleum products at lower prices. In light of the recent price surge, the Fair Trade Commission has also launched an on-site investigation into potential collusion among the four major refiners.

A representative from the Petroleum Association commented, "If you look only at the domestic market, it may appear that the four major refiners have a monopoly, but in the export market, they are in competition. In fact, there is an oversupply, so it is difficult to say that this situation harms consumers."

To encourage competition within the four-refiner oligopoly, the government introduced budget gas stations in 2011. Currently, there are about 1,200 budget gas stations nationwide. Prices for petroleum products at these stations are about 30 to 50 won cheaper, which has produced some results, but has not fundamentally shaken the four-refiner system.

Given that fuel taxes account for 50–60 percent of domestic petroleum product prices and that refiners’ supply prices are determined by international oil prices, the introduction of budget gas stations has had only a limited effect.

Some lawmakers are even calling for the introduction of a windfall tax. Assemblyman Jang Cheolmin of the Democratic Party said, "A windfall tax should be introduced as a preventive measure to ensure that excessive profits do not occur in the future."

How Have Oil Price Regulations Changed?

Until the price liberalization measures in 1997, the government strictly controlled domestic petroleum product prices. In 1948, after liberation, the government introduced a fixed price system in which it determined and announced the prices of all petroleum products distributed in Korea.

Then, from 1969 to 1994, the government managed prices by announcing the maximum allowable price at each distribution stage, from refiners to gas stations, thereby setting a price ceiling. In 1994, a price linkage system was introduced, under which prices for different types of domestic petroleum products were determined in accordance with international petroleum product prices.

Since 1997, price liberalization has been in effect. After the liberalization of oil prices, the government has not set maximum prices for petroleum products.

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