The government decided to cut the fuel tax while also raising the cap that applies to wholesale oil prices. As a result, retail prices for gasoline, diesel, and kerosene are expected to rise across the board. The government projected that final retail prices will settle in the low 2,000 won per liter range.
The government said on the 26th through the special task force of Ministers for essential consumer prices that it will apply the "second oil price scheme" starting at 12 a.m. on the 27th. The second cap was raised by 210 won across all fuel types from the first cap. Accordingly, through Apr. 9, refiners must supply gasoline, diesel, and kerosene to gas stations at no more than 1,934 won, 1,923 won, and 1,530 won per liter, respectively.
Before announcing the second oil prices, the government had said it would expand the fuel tax cut for two months starting on the 27th. The fuel tax cut rate will expand to 15% from 7% for gasoline and to 25% from 10% for diesel. This would lower prices by 65 won per liter for gasoline and 87 won for diesel.
However, with the higher cap added, retail prices are ultimately set to rise above current levels. A government official said, "The 210 won increase this time includes the portion from the fuel tax cut."
Gas stations are generally known to sell at an average markup of about 100 won over refiners' supply prices. If refiners supply gasoline and diesel in the 1,900 won range, retail prices will land in the 2,000 won range. According to Opinet (Korea National Oil Corporation (KNOC) oil price information system), as of the day, the nationwide average retail price of gasoline is 1,819.51 won per liter and diesel is 1,815.69 won. Even by simply adding the 210 won increase this time, it reaches the 2,020 won per liter level.
The government said the second cap increase also aims to manage demand. Yang Ki-uk, head of the Office of Industrial Resource Security at the Ministry of Trade, Industry and Resources, said, "While not passing the full increase in international oil prices on to the public, we set prices so the public bears a certain portion," adding, "We want to send a demand-reduction signal of energy saving."
Meanwhile, the government plans to keep a close watch on gas stations that raise retail prices immediately after the second cap is announced. It will focus on cases where prices are raised right away despite having inventory purchased cheaply during the first cap period, or where prices are increased at an excessively fast pace, contrary to the gradual downward trend after the first phase took effect.