Industry experts anticipate that price reductions will begin in July as international oil price declines are incorporated, but they predict it will take considerable time for prices to return to pre-war levels.
According to the Korea National Oil Corporation's oil price information system, Opinet, the price of Dubai crude oil, primarily imported by South Korea from the Singapore spot market, fell from $106.60 per barrel on May 20 to $73.61 per barrel on June 19, a decrease of 30.9% over the month.
Despite the decline in international oil prices, consumer sentiment remains different. As of 3 p.m. on June 21, the national average gasoline price was 2,008.72 won per liter, maintaining the 2,000 won range for nearly two months since April 18.
Typically, it takes about 2 to 3 weeks for changes in international oil prices to affect domestic prices, suggesting that the impact of recent price drops may be felt as early as mid-July.
The high exchange rate also poses a burden. Since crude oil is priced in dollars, a higher won-dollar exchange rate increases the cost burden for refiners. The won-dollar exchange rate has remained in the 1,500 won range for 24 consecutive trading days from May 15 to June 19.
Uncertainties surrounding the Strait of Hormuz also remain a factor. On June 21, the U.S. and Iran began follow-up negotiations in Switzerland to implement a peace memorandum of understanding (MOU), but Iran has hinted at the possibility of re-blocking the strait and imposing tolls, which has kept the market on edge. Concerns have arisen that if a toll is imposed on civilian vessels, the increased transportation costs could offset the benefits of falling oil prices.
The government's ongoing maximum price system for oil is another variable. The Ministry of Trade, Industry and Energy has postponed the announcement of the seventh maximum price for oil products and extended the current sixth maximum price. If the maximum price were to be lifted immediately, previously suppressed price increases could be reflected all at once, leading to a sharp rise in domestic oil prices.
As of May 21, the cumulative suppressed amount was around 200 won per liter for gasoline and over 300 won and 400 won for diesel and kerosene, respectively. Although the recent drop in oil prices has slightly reduced the suppressed amount, it has not been completely resolved.
The government plans to comprehensively review the normalization of shipping through the Strait of Hormuz, progress in U.S.-Iran negotiations, and trends in international oil prices before deciding on the future of the system.
An industry insider noted, "Even if international crude oil prices fall, the structure of domestic prices reflects exchange rates, international product prices, taxes, and distribution costs, making it difficult for domestic prices to quickly return to pre-war levels. The extent of price reductions felt by consumers is also expected to be limited."
* This article has been translated by AI.
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