The South Korean government has frozen its price caps on petroleum products even as global oil prices surge on a prolonged war between the United States and Iran, a move aimed at containing consumer inflation ahead of the Chuseok holiday.
The Ministry of Trade and Industry said on the 18th that it will implement the 10th round of its petroleum product price cap program from midnight on the 19th, keeping current ceilings in place and extending them for four more weeks. Under the measure, wholesale prices that the country's four refiners charge gas stations will be capped at 1,784 won per liter for gasoline, 1,773 won for diesel and 1,380 won for kerosene until midnight on Oct. 17. The price cap system, first introduced on March 13, will now be in its seventh month.
The government also announced additional steps to stabilize fuel prices. "We will cut fuel prices by 100 won per liter at highway gas stations nationwide during the Chuseok holiday from the 24th to the 27th, and we will extend the fuel tax cut for two more months through the end of November," Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol said the same day. The price reduction applies to 226 state-funded highway gas stations managed by the Korea Expressway Corporation.
The problem is that oil prices have been climbing sharply. Dubai crude, based on spot prices on the Singapore Exchange, has stayed above $120 a barrel since the 9th. Futures prices are also approaching the $120 threshold. The 4.2 trillion won ($3.1 billion) in contingency funds the government set aside to settle accounts under the price cap program is likely to run dry soon.
An official in the refining industry said rising global oil prices feed through to the domestic market with a lag of three to four weeks. "The government's position is that the budget will be sufficient, but that calculation leaves out the opportunity costs borne by refiners," the official said.
