Prime Minister Kim Min-seok said on the 22nd, "We will make a decision on whether to implement the fourth round of the oil price ceiling after fully and carefully considering various opinions." It was interpreted to mean the ceiling, which has been implemented in succession in the first, second and third rounds, could be scaled back or halted going forward.
Through the price ceiling, consumers can buy gasoline, diesel and kerosene at prices lower than international crude, but there is a cost. The government compensates refiners for the gap between international oil prices and the ceiling price, and the funds must come from taxes paid by the public. That is why the ceiling cannot be maintained indefinitely.
That does not mean the ceiling can be stopped right away. If domestic fuel prices climb back to international levels, inflation is bound to surge. An official at a private economic research institute said, "If the government keeps the ceiling, there is a fiscal burden, and if it stops, there is an inflation burden," adding, "It will not be easy to find a solution."
◇ Refiners logged 1.2 trillion won in losses in a month under the ceiling ... "How long can the budget hold the line?"
On the 13th of last month, the government capped wholesale prices per liter under the oil price ceiling at "gasoline 1,724 won," "diesel 1,731 won" and "kerosene 1,320 won." Two weeks later, it raised each by 210 won to "gasoline 1,934 won," "diesel 1,923 won" and "kerosene 1,530 won." According to the industry, the four domestic refiners are estimated to have suffered about 1.2 trillion won in sales losses during the first month after the ceiling took effect. That is because increases in international refined product prices were not reflected in refiners' wholesale prices in a timely manner.
A refining industry official said, "If the oil price ceiling continues, refiners have no choice but to seek compensation for the difference with international refined product prices." The Petroleum and Petroleum-Alternative Fuel Business Act contains a clause allowing the government to provide fiscal support to offset refiners' losses stemming from the ceiling.
If the government keeps the oil price ceiling in place, the fiscal burden is expected to grow. The government earlier said that if refiners calculate their losses and submit them, it will conduct an internal review committee process and settle afterward. A six-month budget for this has been reflected in the supplementary budget at 4.2 trillion won. If compensation for refiners' losses exceeds that amount, additional funding will be needed.
Minister Kim Jung-kwan of the Ministry of Trade, Industry and Resources said in an interview with Yonhap News on the 19th that the oil price ceiling "was a temporary measure to respond to an abnormal wartime situation," adding, "The right answer is to end the system as soon as the situation stabilizes."
Jeong Jeom-sik, policy committee chair of the People Power Party, said at the party's supreme council meeting on the 22nd, "(The oil price ceiling) is a policy that suppresses inflation for a moment while simultaneously increasing the burden on public finances and distorting the market."
◇ Ceiling lowered inflation by 0.8 percentage point... If halted, prices could rise immediately
If the oil price ceiling is halted out of concern for the fiscal burden, consumer prices felt by the public could jump. The Korea Development Institute (KDI) said in an analysis report released that day that "the oil price ceiling lowered March consumer prices by up to 0.4–0.8 percentage point." Last month's consumer price inflation was 2.2%, and without the ceiling it could have reached as high as 3%.
KDI estimated gasoline and diesel prices for the fourth week of March if the oil price ceiling had not been implemented. Based on the trend in international refined product prices and the won-dollar exchange rate, it assessed that gasoline could have risen to 2,279 won per liter and diesel to 2,732 won. Actual prices at the time were gasoline 1,819 won and diesel 1,816 won. The ceiling suppressed gasoline by 460 won and diesel by 916 won, respectively.
If the ceiling ends, the fuel prices that have been held down could rebound.
◇ Demand for oil rose after the ceiling took effect… Signs of stockpiling emerged
While prices were capped under the oil price ceiling, gasoline and diesel sales at gas stations increased from the previous week. According to the Ministry of Trade, Industry and Resources, sales in the second week of March, the first week of the ceiling, were 609,723 kiloliters, down 9.3% (62,831 kiloliters) from the previous week. But in the third week of March, they rose 4.6% (28,345 kiloliters) to 638,068 kiloliters. In the fourth week of March, they increased 14.6% (92,932) to 731,000 kiloliters. In the fourth week of March, they also rose 9.0% (60,147 kiloliters) from a year earlier. The government lowered the second-round oil ceiling prices by 210 won from before and kept them unchanged in the third round. A refining industry official said, "Watching the ceiling price go up, consumers seemed to think 'now is the cheapest time' and engaged in stockpiling."