Diesel and Gasoline Approaching Historic First Simultaneous 2000 Won Era

National Average Diesel Price Surpasses 2000 Won
Gasoline Price Also Nears 2000 Won Range
Concurrent Increase Expected to Continue for a While
Livelihood Drivers' Worries Deepen

[Asia Economy reporters Donghoon Jeong and Chaeseok Moon] For the first time ever, both diesel and gasoline prices are approaching 2,000 KRW per liter. Notably, this is the first time diesel prices have surpassed gasoline prices and exceeded 2,000 KRW. As fuel prices rise sharply regardless of fuel type, concerns are growing that the logistics crisis caused by the total strike of the Cargo Solidarity Union and the burden on everyday consumers will intensify.

According to the Korea National Oil Corporation’s oil price information service OPINET, as of 9 a.m. on the 25th, the nationwide average diesel price stood at 2,001.87 KRW. The nationwide average diesel price exceeded 2,000 KRW for the first time the previous day. This represents a 49% increase (657.36 KRW) compared to 1,343.57 KRW at the same time last year. Diesel prices briefly stalled after the fuel tax reduction rate was expanded from 20% to 30% this month but have continued to rise daily since the 3rd due to the surge in international oil prices.

The phenomenon of diesel prices surpassing gasoline prices has also continued for fifteen days. As of 9 a.m. on this day, gasoline prices were 1,997.23 KRW. Gasoline prices, which broke the 2,000 KRW mark for the first time in 9 years and 5 months (since October 2012) in early March, dropped to 1,932 KRW on the 6th before sharply turning upward.

The sharp rise in diesel and gasoline prices is due to the surge in energy prices following Russia’s invasion of Ukraine. In particular, for diesel, Western sanctions banning imports of Russian oil?which accounts for 60% of Europe’s total imports?have caused a significant supply shortage relative to demand.

The problem is that the simultaneous rise in diesel and gasoline prices is likely to continue for some time. Russia’s war in Ukraine is cited as the main cause of reduced supply of crude oil and petroleum products. Many analyses suggest that the sharp increase in diesel prices is largely due to inventory shortages centered in Europe, where diesel vehicle demand is high, following the war. The global sanctions on Russian petroleum products also have a considerable impact.

Domestic diesel wholesale prices are linked to international diesel prices. The influence of international oil price trends is inevitably significant. International oil prices rarely fall below 100 dollars per barrel. On the previous day (local time), the July West Texas Intermediate (WTI) crude oil price on the New York Mercantile Exchange fell by 52 cents (0.47%) from the previous trading day to 109.77 dollars per barrel.

The soaring oil prices are deepening the worries of the industrial sector. In particular, livelihood drivers such as truck drivers, who spend hundreds of thousands of KRW monthly on fuel for long-distance driving, have been hit hard by the soaring diesel prices. Although the government plans to expand fuel price-linked subsidies starting next month, critics say this will not be enough to resolve the issue.

Consumers’ burden of rising prices is also increasing. Ultimately, the price pressure follows the chain of ‘energy price increase → logistics cost increase → price increase.’ In fact, the price rise that began in the second half of last year peaked last month. The consumer price index in April rose 4.8% compared to the same period last year, marking the highest record in 13 years and 6 months since October 2008 (4.8%).

A refining industry official said, "As major European countries restrict or ban diesel imports from Russia, one of the world’s largest oil producers, supply-demand imbalances have worsened," adding, "Since Europe, which imported most of its diesel from Russia, has turned its back on Russia, the rise in diesel prices will not end as a short-term trend."