Diesel More Expensive Than Gasoline... Reversal After 9 Months?

Decline in Heating Demand Leads to Drop in International Diesel Prices
Gas Stations Selling Cheaper Than Gasoline Appear One After Another

[Asia Economy Reporter Oh Hyung-gil] On the afternoon of the 13th, the diesel price at Sindang-dong Gas Station located in Jung-gu, Seoul was 1,998 KRW per liter, which was 100 KRW lower than the gasoline price of 2,098 KRW. Nearby Pildong Gas Station also had diesel priced about 80 KRW cheaper than gasoline. Among the 10 gas stations operating in Jung-gu, diesel prices were lower than or equal to gasoline prices at 4 locations.

The price of diesel, which was more expensive than gasoline, has recently been falling again. As the price gap between the two products narrows to the lowest level of the year, the price inversion between diesel and gasoline is expected to be resolved soon.

As of the 13th, the average diesel price at gas stations nationwide was 1,613.8 KRW, down 1.8 KRW from the previous day. On the other hand, the gasoline price rose by 0.2 KRW to 1,576.9 KRW. The price difference between the two products is around 37 KRW, the smallest this year.

At the beginning of this year, the difference was about 180 KRW. On January 1st, diesel was 1,721.0 KRW and gasoline was 1,541.6 KRW. However, as diesel prices fell and gasoline prices rose, the price gap narrowed to 70 KRW in early this month. If this trend continues, diesel prices may fall below gasoline prices within this month.

The biggest reason for the decline in diesel prices is the season. The heating demand in Europe, which caused the sharp rise in diesel prices last year, is decreasing. International prices are also rising for gasoline but falling for diesel. The price of diesel (0.001% sulfur content) in the Singapore spot market peaked at $181.7 per barrel in the third week of June last year and has been on a downward trend, currently at $107.5 as of the second week of February.

Also, although Western countries such as the United States and the European Union (EU) imposed sanctions by banning Russian crude oil imports, the effectiveness has not been as expected. It is analyzed that India and China, which did not participate in the sanctions, imported Russian crude oil, refined it, and exported it to the EU in the form of petroleum products, substituting diesel demand.

The government's adjustment of the fuel tax reduction rate since last month also had an impact. From January 1st this year, the government reduced the fuel tax cut rate applied to gasoline from the previous 37% to 25%, but maintained the 37% reduction rate for diesel.

The price inversion between diesel and gasoline occurred on May 11th last year, after the outbreak of the Russia-Ukraine war. At that time, the nationwide average diesel price was 1,947.6 KRW, surpassing gasoline (1,946.1 KRW). It was the first time in about 14 years since June 27, 2008, that diesel prices exceeded gasoline prices.

Due to the decline in international oil prices, the average gasoline selling price at domestic gas stations has dropped to the 1,500 KRW per liter range for the first time in a year and a half. On the 11th, a gas station in Seoul was selling gasoline at 1,497 KRW per liter. Photo by Jinhyung Kang aymsdream@