Fuel prices are displayed at a gas station in Seocho-gu, Seoul, on Friday, ahead of the announcement of the eighth round of oil price caps set to take effect Saturday. [Yonhap]
Fuel prices are displayed at a gas station in Seocho-gu, Seoul, on Friday, ahead of the announcement of the eighth round of oil price caps set to take effect Saturday. [Yonhap]

South Korea's eighth round of oil price caps, effective Saturday at midnight for the next four weeks, will be frozen at existing levels: 1,784 won per liter for gasoline, 1,773 won for diesel and 1,380 won for kerosene. Domestic pump prices are expected to remain in the 1,800-won range as a result.

The Ministry of Trade, Industry and Energy announced Friday that the eighth-round caps would be held at the same levels as the seventh round.

Under the seventh round, which took effect June 27 at midnight for four weeks, the government cut the cap by 150 won per liter — the first reduction in 106 days at the time — bringing pump prices down from the 2,000-won range to the 1,800-won range.

The oil price cap system sets a ceiling on the supply price that refiners charge gas stations. Stations then add taxes, distribution costs and margins to arrive at the final retail price.

Continued armed conflict between the United States and Iran has pushed up international oil prices, and the cap system is expected to remain in place for now. The government said it would also consider shortening the four-week review cycle if the Middle East situation deteriorates further.

President Lee Jae-myung said at a Cabinet meeting at Cheong Wa Dae on Tuesday that "according to the original plan, we should have lowered the cap further or lifted it by now, but it seems we may need to tighten it instead."

The remark was interpreted as a signal that the cap system should continue operating to cushion the impact of surging domestic fuel costs driven by rising international oil prices and ease the burden on ordinary households.

Brent crude, which had fallen to $71 per barrel on July 1, surpassed $100 within two months. Some forecasts suggest it could approach $120 per barrel in the fourth quarter.

Concerns over crude supply instability are growing as a possible blockade of the Red Sea — an alternative route to the Strait of Hormuz — has also come under discussion. Yemen's Iran-backed Houthi rebels declared a maritime blockade against Saudi Arabia on Thursday, raising the prospect that passage through the Bab el-Mandeb Strait, the entrance to the Red Sea, could also be disrupted.

If a blockade materializes, Asian countries that rely heavily on Middle Eastern crude could face severe consequences, and some analysts say they would need to seek alternative shipping routes such as the Suez Canal.

Yang Ki-wook, director general for industrial resource security at the Ministry of Trade, Industry and Energy, said "We decided to freeze the price cap after weighing the current situation against the growing burden on ordinary people's livelihoods, including a recent inflation rate of around 3 percent and the Bank of Korea's benchmark interest rate hike."

He added that "this decision focused on protecting the livelihoods of ordinary people from the high volatility in international oil prices caused by uncertainty in the Middle East, and on minimizing the burden on subsistence consumers such as truck drivers, delivery workers and those in agriculture and fisheries."

Yang went on to say that "as tensions in the Middle East continue to escalate, the government will monitor domestic and international developments in real time," adding that it would "operate the price cap system in an agile and flexible manner, taking comprehensive account of the Middle East situation, oil supply and demand, inflation, the burden on ordinary households, and the need for demand management."


oskymoon@heraldcorp.com