Invest1 publisher3 min readPublished Updated
Korea's published gasoline ceiling sits 75 won below the pump price it is credited with holding
Dubai crude rose $14.4 in a week to $114.7 a barrel while the Korean pump average fell 1.1 won to 1,859.1 a liter. The government's ninth-round maximum for gasoline is 1,784 won, and the report does not explain the gap.
The Investor · Invest desk
What happened
- Dubai crude, the benchmark for South Korea's imports, rose $14.4 from a week earlier to $114.7 a barrel as armed conflict in the Middle East raised concern about crude shipments.
- The nationwide average gasoline price at Korean filling stations was 1,859.1 won a liter over September 6 to 10, down 1.1 won and the 17th consecutive weekly fall, according to Opinet.
- On August 21 the government set its ninth round of maximum petroleum prices at the eighth round's levels: 1,784 won a liter for gasoline, 1,773 for diesel and 1,380 for kerosene.
Compiled by The InvestorSomething wrong?How this is made
Why it matters
- contradiction The report credits the ceiling with the 17-week decline, yet every retail figure it publishes is above the published maxima, so the record does not let a reader tell whether the cap binds at the pump.
- constraint A price ceiling changes who absorbs a higher import bill; it adds no barrels, while the American instrument under discussion acts on refinery throughput.
- exposure Someone between the import invoice and the till is absorbing a 14.4 percent weekly crude move against a pump price that barely moved, and the report does not identify who.
- precedent Rolling the ninth round over at the eighth round's numbers makes flat the default, so any increase in the tenth round becomes a visible policy change.
Every retail figure in last week's Opinet survey sits above the ninth-round gasoline maximum. The cheapest brand in the country, the Alddeul discount stations at 1,849.2 won a liter [6], is 65.2 won over it [3]. The cheapest city, Daegu at 1,832.1 [7], is 48.1 won over [4]. The national average of 1,859.1 [3] is 75.1 won over, about 4.2 percent [2]. Diesel averaged 1,844.0 won, 71.0 won above its own maximum [8][5]. Analysts credit the 17-week run of declines to the ceiling, according to the Seoul Economic Daily report [9], which does not say what the maximum prices apply to.
The weekly rates are not close. Dubai at $114.7 is 14.4 percent above the $100.3 it fetched a week earlier [1][1]. The pump average moved six hundredths of one percent, and downward [6]. Global moves reach Korean stations after two to three weeks, the report says [12], so this week's $14.4 arrives at the till around the end of September.
Look at the dispersion inside the market. Seoul at 1,905.3 and Daegu at 1,832.1 are 73.2 won apart [7][7], nearly the whole distance between the national average and the cap [2]. GS Caltex and Alddeul are 13.1 won apart [10]. A cap that binds at the pump would pull the range toward 1,784.
I think the 17 falling weeks trace back to crude bought before this move, and the ceiling is not what is producing them. The counter-case is straightforward. If the 1,784 figure applies upstream, to a supply or pre-tax price, then fuel taxes and retail margin would put the till price far above it, and the cap could bind hard without a single station ever posting under 1,784.
Washington's option addresses the part of the price that moved least. Crude rose $14.4 [1]; international gasoline rose $9.9 to $131.2 [10] and automotive diesel $5.6 to $170.4 [11]. On a common barrel basis the gasoline-over-crude difference narrowed by $4.5 in the week, and the diesel difference by $8.8 [8][9]. The Defense Production Act, enacted in September 1950 to support supply of military materials, lets the U.S. president require private companies to expand production of key goods [13], and Reuters, citing sources, reported that Trump discussed using it on the 1st with officials from more than 10 refiners [5]. The jump in fuel prices is one of the difficulties confronting him ahead of the midterm elections, the report says [14].
What would prove this reading wrong: a Korean pump average still drifting down through October with Dubai above $110, after the two-to-three week lag has fully run. That would mean the cap is absorbing the import cost somewhere the retail numbers do not show, and the question becomes who is funding it.
What to watch
- The tenth round of maximum petroleum prices, and whether gasoline stays at 1,784 won a liter or is lifted.
- Whether the Defense Production Act is actually invoked for refiners, and what any order requires of the companies at the September 1 meeting.
- Dubai crude giving back the $14.4 would settle the test before the two-to-three week lag runs.