The "oil price ceiling system" takes effect at midnight on the 12th. For the next two weeks, refiners must sell gasoline to gas stations at or below a fixed amount per liter (ℓ). The ceiling, to be released during the day, is expected to be set lower than 1,833 won—the current average supply price of the four refiners—based on gasoline.
Retail prices paid by consumers may vary by gas station. It is the first time in 29 years since the 1997 liberalization of petroleum product prices that the government is directly intervening in market prices.
This implementation of the "oil price ceiling system" is based on Article 23 of the current Petroleum Business Act. This provision says that when import or sales prices of petroleum fluctuate significantly or are likely to fluctuate, the Minister of the Ministry of Trade, Industry and Resources may set a ceiling for petroleum refiners, importers, or sellers. It can be called a "fuel price cap."
◇ Gasoline prices up 200 won in 10 days... "Cap the wholesale price to induce lower retail prices"
The price consumers pay for fuel is set by each gas station by adding various expense items such as labor and logistics costs and a certain margin to the refiner's wholesale price. After the Middle East crisis, when gas station fuel prices surged, the government decided to cap the wholesale price corresponding to the import cost to induce retail price declines. The average nationwide gas station gasoline price rose 12.4% (210 won) from 1,693 won per liter on Feb. 26, before the Middle East crisis, to 1,903 won as of this morning.
On not applying a cap to retail prices, the Ministry of Trade and Industry (MOTI) said, "Prices vary widely depending on the gas station's location and operating method, such as self-service, so we judged that setting a uniform price would be difficult." A senior official at the Ministry of Strategy and Finance said, "It is not possible to completely control the retail prices of more than 10,000 gas stations nationwide."
The wholesale price ceiling was set by multiplying the average wholesale price of petroleum products in the last week of Feb., before the Middle East crisis, by the recent rate of increase in Singapore petroleum product spot prices and then adding taxes (諸稅金). If a refiner is caught violating the ceiling system, it can face up to two years in prison or a fine of up to 50 million won under the Petroleum Business Act.
If the government judges that the average fuel price has stabilized over the two weeks, it plans to lift the ceiling system. The two-week application period reflects the average two-week lag for international crude prices to be reflected in domestic petroleum product supply prices. If, after two weeks, the average fuel price continues to exceed the ceiling or prices keep rising, the government will set a second ceiling. The second ceiling is determined by multiplying the first price by the recent international price fluctuation rate and adding taxes.
◇ Refiners cannot increase overseas exports beyond last year... the government will cover part of the losses
The government notice also includes a provision that refiners cannot increase overseas export volumes of petroleum products this year beyond last year's levels. This is to prevent shifting volumes intended for domestic sales to overseas markets. A separate notice banning hoarding and cornering by refiners and gas stations will also be implemented.
The government decided to compensate part of the losses refiners incur due to the ceiling system with national funds. Refiners must calculate their losses at the end of each quarter and apply to the government. The government will form a "ceiling settlement committee" consisting of accountants, legal professionals, and petroleum industry experts to verify refiners' losses and then settle the amounts.