South Korea cuts petroleum price cap by 150 won per liter, fuel prices seen falling below 2,000 won

Fuel prices at gas stations are expected to drop from the 2,000-won range to the 1,800-won range after the government cuts the seventh petroleum price cap by 150 won per liter, effective Saturday at midnight.

It marks the first downward adjustment since the petroleum price cap system was introduced on March 13, 106 days ago.

According to the Ministry of Trade, Industry and Energy, the seventh petroleum price cap takes effect Saturday at midnight and will be reduced by 150 won per liter.

Under the new cap, gasoline is set at 1,784 won per liter, diesel at 1,773 won and kerosene at 1,380 won. The petroleum price cap places an upper limit on the supply price that refiners charge gas stations. Stations then set their final retail prices by adding taxes, distribution costs and margins on top of that figure.

Since the system launched on March 13, the cap was raised by 210 won per liter for each fuel type at the second adjustment on March 27, then frozen four consecutive times through the sixth round.

With ex-refinery prices of 1,934 won for gasoline and 1,923 won for diesel held in place for nearly three months, pump prices stubbornly remained in the 2,000-won range.

The 150-won-per-liter reduction is now expected to bring pump prices down into the 1,800-won range.

The government moved to cut the cap for the first time since the system's introduction because international oil prices have stabilized to levels seen before the Middle East war.

Supply concerns stemming from the Middle East have eased considerably following the recent signing of a memorandum of understanding on an end-of-war agreement between the United States and Iran, which has led to increased oil tanker traffic through the Strait of Hormuz.

International crude prices fell to the low-to-mid $70s per barrel as a result. International petroleum product prices also dropped sharply compared with earlier this month, providing sufficient grounds to lower the price cap.

The government said stabilizing domestic prices is its top priority and cited that goal as the driving force behind the move. The aim is to ease inflationary pressure by proactively bringing down fuel costs, which have the most direct impact on ordinary households.

However, there is likely to be some lag before the reduction is reflected at the pump. Because gas stations typically receive product deliveries every two to three weeks, prices cannot come down until the more expensive inventory from the previous supply cycle is sold off first.

There are also concerns that stations — which have historically been quick to raise prices when international oil prices climb but slow to pass on reductions — may repeat that pattern this time around.

The government said it will launch intensive inspections of gas stations to prevent deliberate delays and ensure consumers feel the benefit of the lower cap as quickly as possible.

"The government, consumer groups and public institutions will jointly conduct intensive monitoring of prices and supply volumes at some 10,000 gas stations nationwide, while carrying out rigorous on-site inspections through a cross-ministry market inspection team to identify and strictly penalize stations engaged in illegal conduct," a Ministry of Trade, Industry and Energy official said.

The seventh price cap announced this week will remain in effect for four weeks. The government said it plans to adjust the review cycle flexibly going forward, depending on developments in the Middle East and movements in domestic and international oil prices.