"Oil prices must fall below at least $100 before ending the price cap is considered"

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The government said it will keep the oil price cap in place for now, even as the Middle East war drags on. It added that a full review of ending the policy would only be possible once global oil prices fall to at least below $100 per barrel. It also stressed that major countries, including Japan and those in Europe, are responding to energy inflation with subsidies, price caps, and fuel tax cuts.
At the briefing on the 14th, Yang Ki-wook of the Ministry of Trade, Industry and Energy said, "The situation in the Strait of Hormuz must stabilize and international oil prices must become predictable." He added, "To ease consumer shock from ending the price cap, fuel prices will likely need to fall below $100, into the $90 range."
Current global oil prices remain well above the government's stated "stable range below $100." According to MOTIE, as of the morning of the 14th, Brent Crude Oil stood at $105.72 per barrel, while West Texas Intermediate crude oil (WTI) was at $101.04.
The government said the price cap is not a system meant to be maintained indefinitely. It explained that it will decide when to end the policy after taking into account global oil prices, cumulative domestic price increases, and trends in overseas petroleum product prices.
The government said the price cap has had some effect in stabilizing domestic inflation. According to the Organisation for Economic Co-operation and Development (OECD), the average energy price increase among member countries reached 8.1% in March, the highest level in four years and one month. By contrast, South Korea saw a rise of only 5.2%. The U.S. recorded a 12.5% increase, and France 7.1%. The government said the oil price cap and fuel tax cuts likely played a role.
Yang said, "I understand that there are various assessments and opinions about the price cap." He added, "But I believe it plays an important role in giving truck drivers, charter bus operators, delivery workers, and others in these livelihoods a sense of psychological and economic stability, as well as predictability."
The government also emphasized that major countries overseas are implementing aggressive oil price stabilization measures. Japan is subsidizing refiners to keep gasoline prices around 170 yen per liter, while Hungary has reintroduced a price cap. The Czech Republic is limiting both prices and gas station margins, and Thailand, Poland, Taiwan, and France are also combining subsidies or tax cuts. In the U.S., legislation to temporarily suspend the federal fuel tax is also under discussion.
Yang said, "There have been reports that our price cap is unusual and exceptional, but the tools may differ. Other countries are also using a range of policies because they are worried about the burden of higher prices on households and the risk of an economic slowdown."
The government said it will also continue loss compensation under a cost-based principle. MOTIE plans to prepare a notice on loss compensation by the end of this month and is currently discussing detailed standards with refiners.
Yang said, "The principle is to ensure that oil refining companies do not suffer losses, including crude import costs, production costs, and logistics costs." He added, "However, this does not mean compensating for opportunity gains."
He also explained, "Refiners say they are suffering losses under the price cap, but in reality that includes additional profits they could have earned from exports." He added, "What is compensated through state finances is cost-based losses."
The government is also actively using strategic oil stock swaps. The refining industry is expected to apply for about 31 million barrels of swaps in April and May, of which 18 million barrels have already been contracted. In particular, condensate swaps have also been carried out, given their high share in naphtha production.
Domestic fuel consumption is declining under the pressure of high oil prices. According to MOTIE, gasoline and diesel consumption in April fell 10% from a year earlier, and it was down 4% in the first two weeks of May as well. Yang said, "The decline in April consumption was mainly driven by higher prices." He added, "But in May, the pace of decline appears to be easing somewhat."
aber@fnnews.com Park Ji-young Reporter