Koo vows to lower oil price cap, freeze public utility rates in second half

The government said Friday it will lower the ceiling price for petroleum products to reflect falling global oil prices while keeping the price cap system in place until consumer prices stabilize, and will freeze major public utility rates — including electricity and gas — in the second half of the year to ease the burden on ordinary households.

The seventh revision to the petroleum maximum price system, set to be announced Friday evening, is expected to cut the cap by more than 100 won per liter, which analysts say would bring the national average gasoline price below 2,000 won per liter in the near term.

Deputy Prime Minister and Finance Minister Koo Yun-cheol made the announcement at a joint emergency economic headquarters meeting, economic ministers' meeting and special task force on living costs held at the Government Seoul Complex on Friday. "The seventh petroleum maximum price will be lowered from the current level, taking into comprehensive account the decline in international oil prices, the burden on people's livelihoods and fiscal conditions," he said.

Koo added that the cap would remain in effect "until petroleum consumer prices stabilize." He said external uncertainty had been gradually easing since the signing of a Middle East war ceasefire MOU, with international oil prices falling and the national average diesel price dropping below 2,000 won per liter for the first time in two months.

The petroleum maximum price has remained unchanged for nearly three months since its second adjustment took effect on March 27, when the cap was raised by 210 won per liter across all fuel types. The current ceilings stand at 1,934 won per liter for gasoline, 1,923 won for diesel and 1,530 won for kerosene.

As US-Iran negotiations have progressed and international oil prices have fallen back to pre-war levels, however, a downward adjustment to the cap has become unavoidable.

According to Korea National Oil Corp.'s Opinet, Brent crude futures stood at $73.14 per barrel as of 8 a.m. Thursday — in effect recovering to the level seen just before the war began ($72.48).

West Texas Intermediate also slipped below the $70 mark, trading at $69.92, while Dubai crude fell to $67.29 — actually cheaper than before the war.

Yet as of 8 a.m. Thursday, the national average gasoline price stood at 2,007 won per liter and diesel at 1,998 won, both hovering around 2,000 won for a third consecutive month since April. That remains far above the 1,500–1,600 won range seen before the war.

The main reason global price declines have not been immediately passed on to domestic consumers is a time lag. Gas stations typically receive fuel deliveries every two to three weeks, meaning expensive existing inventory must be sold off before prices can come down.

The still-elevated petroleum maximum price is also a factor holding back price declines, since the system sets a ceiling on the wholesale price that refiners charge gas stations.

When the system was introduced, it served as a firewall against surging domestic fuel prices. Now that international oil prices have fallen, however, it has instead become a floor that is slowing the pace of domestic price declines.

To fulfill the original purpose of the system — stabilizing living costs — the government plans to lower the petroleum maximum price to push down pump prices that consumers actually pay. Industry analysts say a reduction of more than 100 won per liter is needed to bring gasoline prices, currently in the 2,000-won range, down below 2,000 won.

The government will also freeze electricity and gas rates in the second half of the year and temporarily exempt LPG butane sales levies through year-end. Households receiving energy vouchers for kerosene or LPG use will receive an additional 147,000 won ($96) on top of existing support, and the "Small Business Hope Dream" loan program for small businesses hurt by high oil prices will be expanded from 1.5 trillion won to 3 trillion won.

Koo said the government would "swiftly prepare and announce support measures for small and medium-sized enterprises hurt by the high exchange rate, following today's high-inflation response package." He pledged to "accelerate the industrial paradigm shift toward AI and green transformation while pursuing structural reform of the economy and society in line with these changes."