As international diesel prices soar to record highs due to demand from the United States, South Korea's four major refiners are missing out on profit opportunities because of government export controls. Experts predict that lifting these restrictions is essential to minimize potential losses from future negative lag effects.
According to the refining industry on October 18, recent diesel prices in the U.S. have surged to $6.50 per gallon (approximately 2,300 won per liter), nearly doubling since the beginning of the year. In the UK, diesel prices have also surpassed £2 per liter (about 3,500 won).
The high diesel prices are a major topic ahead of the U.S. midterm elections scheduled for November 3. The northeastern Rust Belt and southeastern Bible Belt regions, traditionally strongholds for the Republican Party, have the highest diesel demand globally due to their economies centered around light industry and agriculture, as well as a preference for pickup trucks. The U.S. Energy Information Administration (EIA) estimates that the U.S. will consume an average of about 3.79 million barrels of diesel per day in 2024, making it the largest diesel-consuming country in the world.
Public sentiment is understandably sensitive to diesel prices. This context explains why President Donald Trump has agreed to lift sanctions on Russia and import Russian diesel.
Despite the high demand for diesel, U.S. shale oil is known to yield less than 20% diesel after refining due to its ultra-light crude composition. The ongoing conflict in Iran has further complicated access to Middle Eastern diesel. Analysts suggest that refining diesel from Orinoco heavy crude, secured after the Trump administration's efforts to oust Venezuela's Maduro regime, will take at least two years.
Experts predict that the strong diesel prices will persist for over two years.
The challenge for SK Energy, GS Caltex, S-Oil, and HD Hyundai Oilbank is that government export restrictions are causing them to miss profit opportunities amid soaring diesel prices and demand. The Lee Jae-myung administration implemented the first oil price ceiling on March 1, limiting monthly exports of gasoline, diesel, and kerosene to 100% of the same month in the previous year and requiring domestic sales to remain above 90%.
Additionally, the government has frozen oil price ceilings four times in a row to stabilize prices, further exacerbating the refiners' concerns. There are significant disagreements between the ceiling adjustment committee and the four refiners regarding the criteria for calculating loss compensation, raising fears that costs related to crude oil purchases, transportation, and insurance may not be adequately reimbursed.
Industry voices are calling for the lifting of diesel export restrictions to prepare for potential losses from falling oil prices. An industry insider stated, "A significant portion of the profits generated during the Middle Eastern conflict needs to be reserved for when the negative lag effects occur post-war. If the ceiling adjustment is delayed, the government should at least lift the diesel export restrictions to allow companies to strengthen their financial resilience through policy changes."
* This article has been translated by AI.
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