Gas prices fall below 2,000 won for first time in 2 months, but pre-war levels seen out of reach

Domestic fuel prices dropped into the 1,900-won-per-liter range for the first time in more than two months, following the government's implementation of the seventh round of petroleum price caps, which cut prices by 150 won per liter.

Analysts say that if the Middle East situation continues to stabilize, international oil prices could gradually normalize with a two-to-three-week lag — but warn that rising global petroleum product prices and a weaker won will likely prevent domestic fuel costs from returning to pre-war levels.

According to Opinet, the oil price information service run by the Korea National Oil Corp., the national average retail price of gasoline stood at 1,991.1 won per liter as of 9 a.m. Sunday, down from 1,996.1 won the previous day. Gasoline prices have now remained below the 2,000-won mark for two consecutive days.

The national average gasoline price had climbed above 2,000 won on April 18, when it reached 2,001.5 won per liter. Sunday's reading was the first time it had fallen back into the 1,900-won range in over two months.

The national average diesel price also stood at 1,982.3 won per liter on Sunday. Diesel has held in the 1,900-won range since dropping below the 2,000-won threshold on Wednesday — two days ahead of gasoline making the same move.

The decline in domestic fuel prices reflects a recent fall in global crude oil prices, combined with the government's decision to lower the petroleum price cap for the first time since introducing the measure roughly 100 days ago.

The government applied the seventh round of petroleum price caps from midnight Saturday, setting the ceiling at 1,784 won per liter for gasoline, 1,773 won for diesel and 1,380 won for kerosene — each reduced by 150 won. It was the first downward adjustment in the 106 days since the price cap system took effect.

Global crude prices have also been falling. According to Opinet, the price of Dubai crude on the Singapore spot market — the benchmark for South Korea's oil imports — tumbled 34.3 percent over the past month, from $98.0 per barrel on May 26 to $64.4 on June 25.

That puts the price below the roughly $70-per-barrel level seen just before the outbreak of war between the United States, Israel and Iran. However, consumers may not fully feel the benefit of the recent crude price drop for another two to three weeks, given that gas stations are still working through stockpiles of gasoline purchased at higher prices.

The timing and scale of price cuts will also vary by station, depending on individual inventory levels. Stations sitting on large reserves of fuel bought at peak prices face pressure not to cut prices all at once.

Domestic fuel prices are therefore expected to ease gradually over the next two to three weeks, analysts said.

"Taking into account differences in inventory levels across stations, prices look set to fall by around 50 won per liter each week over the next two to three weeks," an industry official said. "However, taxes and retail margins need to be factored in, and international petroleum product prices are still higher than they were before the war, so the scope for price cuts may be limited."

In other words, while global crude prices have fallen below pre-war levels, rising international petroleum product prices and a higher exchange rate mean domestic fuel prices are unlikely to return to where they were before the conflict began.

According to Opinet, the national average retail gasoline price during the fourth week of February — just before the outbreak of war between the United States, Israel and Iran — was 1,691.3 won per liter.

The international gasoline price in the fourth week of June stood at $100.6 per barrel, up about 27.7 percent from $78.8 in the fourth week of February, before the war.

Meanwhile, the consumer group Energy and Oil Market Watch said that as of 6 a.m. Sunday, 3,160 gas stations had lowered their gasoline prices and 3,285 had cut diesel prices compared with Friday, the day before the seventh price cap took effect.