Emergency measures introduced by the government in response to the Middle East crisis have entered a normalization phase. With the first cut to the oil price cap as a starting signal, restrictions on naphtha exports could be lifted as early as next week.
According to the government on the 28th, the Ministry of Trade, Industry and Resources lowered the seventh oil price cap by 150 won from the sixth at midnight the previous day. It is the first downward adjustment since the price cap system was introduced on Mar. 13 as a response to high oil prices.
The Ministry of Trade and Industry (MOTI) should have set a new seventh cap on the 19th under its adjustment cycle, but it extended the sixth cap, judging at the time that U.S.-Iran cease-fire talks were fluid. The reversal to a cut in just over 10 days is due to rapidly changing conditions, including a marked increase in traffic through the Strait of Hormuz and a sharp drop in international oil prices. International oil prices, which once surged to $140 per barrel, have fallen to around $70, nearly returning to prewar levels.
Measures related to petrochemical feedstocks are also expected to normalize. As the blockade of Hormuz dragged on and an emergency arose in naphtha supply, the government, starting on Mar. 27, completely banned exports and redirected all volumes to the domestic market. Korea relies on imports for 45% of its naphtha demand, 77% of which comes from the Middle East, resulting in a significant blow. Since then, as the government diversified supply chains to the United States, India and elsewhere, secured volumes recovered to 83% of normal levels, and the operating rate of naphtha cracking centers (NCC), which had once fallen to 55%, rose to the mid-to-high 70% range, approaching the normal 80%.
With supply and demand stabilizing, the government is reportedly reviewing a plan to lift early, next week, the naphtha export restriction rule that had been scheduled to run through the end of August. Lowering the crude oil resource security alert from the "caution" level to "advisory" is also being discussed. If downgraded, the odd-even public institution vehicle restriction would be eased to a five-day rotation.
There are variables. Following recent ship attacks in the Strait of Hormuz, the United States and Iran launched airstrikes and reprisals, putting the cease-fire agreement to the test. The Ministry of Trade and Industry (MOTI) said the early repeal of the rule has not yet been finalized, noting it is a matter to be decided by comprehensively considering Middle East conditions, the resumption of Hormuz traffic, and prices and supply of naphtha and petrochemical products.