The nationwide average gasoline price fell below 2,000 won per liter for the first time in about two months on the 28th. A driver is fueling a vehicle at a gas station. (Photo = Solution News Magnific)
Nationwide gasoline prices at gas stations have dropped below 2,000 won per liter for the first time in about two months. It is the first time since mid-April that prices have moved back into the 1,900-won range. The sharp fall in international oil prices is driving the decline.
According to Opinet, the Korea National Oil Corporation’s fuel price information service, the nationwide average retail gasoline price stood at 1,991.1 won per liter as of 9 a.m. on the 28th. That was down from 1,996.1 won the previous day. It has stayed below 2,000 won for two straight days. About two months after rising above 2,000 won on April 18 at 2,001.5 won, it has returned to the 1,900-won range.
Diesel followed the same trend. The average retail price was 1,982.3 won. After falling below 2,000 won on the 24th, it has remained in the 1,900-won range.
The government also put downward pressure on prices. From 0 a.m. on the 27th, it applied the seventh ceiling price for petroleum products, cutting gasoline by 150 won to 1,784 won, diesel to 1,773 won, and kerosene to 1,380 won. It was the first downward adjustment since the ceiling-price system was introduced 106 days ago. It can be read as the first turning point in a trend that had only moved upward.
◆ A 34% plunge in international oil prices in one month drove down pump prices
The force pulling prices down is international oil. Dubai crude, which South Korea mainly imports, hit $98.0 per barrel in the Singapore spot market on the 26th of last month. On the 25th, it had fallen to $64.4. That is a 34.3% drop in a month. It is even lower than the $70 per barrel level seen just before the U.S.-Israel-Iran conflict.
Prices that had been driven up by war fears fell quickly as the war ended. As tensions in the Middle East eased, concerns over supply disruptions receded. Industry officials say the market has shifted back to fundamentals such as demand and inventories.
What directly affects gasoline prices is not crude oil, but international petroleum product prices. Gasoline and diesel refined from crude are traded separately in the Singapore spot market. Domestic pump prices fall only when those product prices decline. Crude and product prices do not always move by the same magnitude.
◆ There are structural reasons why prices do not fall as much as they rise
Even as international oil prices fall, gas station retail prices move slowly because of taxes, exchange rates, inventories, and distribution margins. A driver opens a vehicle’s fuel cap. (Photo = Solution News Magnific)
Consumers’ sense of the decline is the problem. Even if international oil prices fall overnight, the price displayed at the gas station moves slowly. That is due to a time lag. It takes time for crude oil imported by refiners to be processed and released to gas stations. Expensive stock already purchased also remains on hand.
One industry official predicted, “Considering differences in inventories by gas station, prices will gradually fall by about 50 won per week over the next two to three weeks.” In other words, it takes two to three weeks for the decline in international oil prices to be fully reflected in consumer prices.
Taxes narrow the size of the cut. Looking at gasoline prices in detail, taxes account for about half. A transportation, energy and environment tax is added first, followed by an education tax and a traffic-based automobile tax. Finally, a 10% value-added tax is added. These taxes remain largely fixed even when international oil prices rise or fall. That is the structural reason why consumer prices cannot fall by as much even if crude prices are cut in half.
Exchange rates are another variable. Oil is settled in U.S. dollars. If the won-dollar exchange rate rises, import costs rise accordingly. Even if international oil prices fall, the effect felt by consumers is reduced if the exchange rate does not help.
Distribution margins and international petroleum product prices also act as drag factors. The fact that product prices remain higher than before the war is still a burden. One industry official said, “You have to consider taxes and distribution margins, and because international petroleum product prices are still above prewar levels, the size of the cut may be limited.”
◆ How drivers manage prices during a decline determines how much they save
Even in a falling market, the amount saved by drivers varies. It is a matter of choice. The Oil Price Information Network website and app operated by the Korea National Oil Corporation show real-time prices at nearby gas stations. It is common for prices to differ by more than 100 won per liter even within the same neighborhood. Simply choosing the cheapest station can save hundreds of won on a single fill-up.
Budget gas stations and self-service stations are also alternatives. In a downward trend, it is better to refuel only as much as needed rather than fill up at once, since prices are likely to drop further next week. Turning on price alerts in a fuel app helps you catch the cheapest stations along your usual route. For freight and commercial vehicles, delaying a bulk refueling by just a few days can increase savings.
The key variables to watch are the situation in the Middle East and exchange rates. If tensions flare again, oil prices can rebound at any time. If the won-dollar exchange rate rises, it offsets the decline in international oil prices. Changes in government ceiling prices and fuel tax policy also affect the price trend.
The nationwide average gasoline price is expected to continue its gradual downward trend for now. The market broadly agrees that the pace will be slow and the extent limited. It will take a little more time before the benefits of lower fuel prices reach drivers’ wallets.