Two refiners face cartel probe over price-sharing during oil market turmoil

SK Energy and HD Hyundai Oilbank, which together control roughly half of South Korea's refining market, have been referred to the Korea Fair Trade Commission for allegedly sharing price information on gasoline, diesel and kerosene over about four years during which global oil prices swung sharply. The two companies are suspected of continuously exchanging price-related information after the Russia-Ukraine war broke out and of explicitly agreeing on supply prices after the US-Iran war.

The Fair Trade Commission's secretariat said Wednesday it had submitted an examination report to the commission and delivered it to the two companies, detailing the findings of its investigation into alleged price-fixing by SK Energy and HD Hyundai Oilbank in the gasoline, diesel and kerosene markets and recommending sanctions.

The submission signals that the secretariat's investigation is complete and the case is moving into the commission's formal deliberation phase.

FTC examiners believe the two refiners exchanged information related to pricing decisions — including provisional supply prices, finalized prices and sales policies — from February 2022 through March this year, a span of roughly four years. The report also includes allegations that the companies explicitly agreed on provisional supply prices on two separate occasions after the US-Iran war.

In the refining industry, prices for petroleum products are typically settled with customers such as gas stations through a post-settlement system. Under this arrangement, a refiner first sets a provisional supply price and delivers the product; early the following month, it sets a finalized price applicable to the previous month's transactions and settles the difference between the two figures.

As a result, the provisional and finalized prices set by refiners can flow through to gas station retail prices and ultimately affect what end consumers pay. Separately, refiners also operate sales policies under which they lower prices for a set period or hold them steady.

South Korea's petroleum products market is dominated by a handful of refiners. Based on last year's figures, market shares stood at 28.1 percent for SK Energy, 25.5 percent for S-Oil, 23.3 percent for GS Caltex and 21.0 percent for HD Hyundai Oilbank — with the four companies accounting for roughly 98 percent combined.

SK Energy and HD Hyundai Oilbank, the two companies under investigation, together hold a 49.1 percent share. No evidence has emerged that GS Caltex or S-Oil participated in the alleged collusion.

Oh Haeng-rok, director of the FTC's cartel investigation bureau, said sharp swings in global oil prices during wartime conditions appeared to have triggered the initial exchange of information. "Although it is an oligopolistic market, the two companies hold about 50 percent of the market, which is sufficient to affect competitive order," he said.

The related sales volume affected by the alleged collusion is estimated at about 44.1 trillion won ($32.8 billion), which works out to roughly 30 billion won per day on average. Examiners concluded that the conduct constitutes a "serious violation" of the Fair Trade Act's prohibitions on price-fixing and information exchange, and recommended that the commission issue a corrective order and impose fines.

Prosecutors had earlier investigated SK Energy and HD Hyundai Oilbank on price-fixing charges and referred the case to trial. In the course of that investigation, allegations also surfaced that executives and employees of the two companies learned in advance of the FTC's on-site inspection schedule and attempted to destroy evidence by deleting electronic records and messenger conversations.

Oh said the FTC's internal audit office is conducting a review into whether the handling of investigation information was inadequate, but added that he understands no information was leaked from within the commission.

The two refiners are entitled to exercise their right of defense within eight weeks of receiving the examination report, including by submitting written opinions and requesting access to and copies of evidence. The FTC plans to convene a full commission meeting once the relevant procedures are complete to determine whether the law was violated and what level of sanctions to impose.

Both companies said they intend to actively present their positions during the FTC's deliberation process. SK Energy said it is "carefully reviewing the contents of the FTC's examination report" and will "faithfully participate in future deliberation procedures, including the full commission meeting, to fully explain the facts and the company's position."

An HD Hyundai Oilbank official said the company "takes the submission of the examination report seriously," but noted that "as this is the initial stage of the deliberation process, we will faithfully present our position on the facts and legal issues in the course of future proceedings."

HD Hyundai Oilbank also pushed back against the FTC's finding that the information exchange influenced pricing decisions.

The official said "all information exchanged was either already publicly available or post-hoc information verifiable through various channels, and had no bearing whatsoever on the company's pricing or sales policy decisions." On the FTC's finding that the companies colluded on provisional supply prices after the US-Iran war, the official said it "is based solely on a one-sided statement by a competitor's representative, and there was absolutely no collusion."