Domestic fuel prices show signs of rebound as Middle East tensions flare

Rising tensions in the Middle East following a US-Iran clash and a sharp surge in global crude prices have raised concerns that domestic fuel price instability could reignite.

According to Korea National Oil Corp.'s Petronet, crude prices as of Friday stood at $90.40 per barrel for Dubai crude, $96.78 for Brent crude and $89.31 for West Texas Intermediate — a jump of around $10 from a week earlier. On Saturday, Brent crude climbed to $100.69 per barrel, surpassing the $100 mark for the first time in more than two months since May 22.

Global crude prices have risen steeply this month as the prospect of supply disruptions from the Middle East grew, driven by a renewed closure of the Strait of Hormuz amid the rekindled US-Iran conflict and the Houthi rebels' declaration of a Red Sea blockade. International prices for petroleum products including gasoline, diesel and kerosene have also risen in tandem.

According to Petronet, international diesel prices on the Singapore spot market stood at $165 per barrel on Friday, with gasoline at $120.82 and kerosene at $158.29. On Saturday, diesel reached $167.61, gasoline $124.74 and kerosene $161 — hitting their highest levels since April 30, May 22 and May 19, respectively.

Domestic gas station prices are also showing signs of a rebound, with the pace of decline slowing sharply in recent weeks. According to Korea National Oil Corp.'s oil price information system Opinet, the national average retail price of gasoline during the fourth week of July (July 19-23) fell 5.1 won per liter from the previous week to 1,872.4 won. That compares with a drop of 59.1 won in the second week of July and 15.5 won in the third week, marking a significant narrowing of the decline.

The average retail price of diesel also fell 5.6 won from the previous week to 1,856.9 won, but the decline was smaller than the 62.3-won drop in the second week of July and the 17.7-won fall in the third week.

As fuel price instability resurfaced, the government on Friday froze the eighth round of maximum oil prices at the same level as the seventh round to guard against further price volatility. It also decided to extend a temporary fuel tax cut, which had been set to expire at the end of this month, by two more months through the end of September.

Industry officials expect that government measures will keep any immediate rise in domestic pump prices relatively contained. However, some in the industry warn that if the global crude price rally is prolonged, policy responses and crisis management could reach their limits. Industry losses from the maximum oil price system have already run into the trillions of won, and price stabilization policies backed by fiscal support are inherently temporary.