War Is Over, but Fuel Prices Remain Unchanged... Weighed Down by Exchange Rates and Supply Chain Costs

[Financial News] International oil prices plunged after the United States and Iran reached a ceasefire agreement, but fuel prices at domestic gas stations in South Korea are still holding above 2,000 won per liter. Analysts say the impact of lower global oil prices has not been fully passed on to consumers because of the high won–dollar exchange rate, geopolitical uncertainty in the Middle East, and accumulated cost burdens across the supply chain.
According to Opinet, the fuel price information system run by KNOC, the nationwide average retail price of gasoline at gas stations stood at 2,008.71 won per liter on the 21st. It has remained in the 2,000-won range for 65 consecutive days since first surpassing that level on April 18.
Diesel prices have followed a similar trend. On the same day, the national average diesel price was 2,003.36 won per liter. It has stayed above 2,000 won for 59 days since April 24.
Both gasoline and diesel prices hit their peaks last month at 2,011.9 won and 2,006.41 won per liter, respectively, before edging down slightly. However, the decline has been limited compared with the drop in international oil prices. In fact, as armed conflict in the Middle East eased, global crude prices fell more than 20% from their postwar highs.
Industry sources point to uncertainty surrounding the Strait of Hormuz as a major reason. Although the United States and Iran signed a memorandum of understanding on ending the war, traffic through the Strait of Hormuz, a key route for crude shipments, has not yet returned to normal.
According to foreign media reports, the number of merchant ships passing through the Strait of Hormuz has recently risen to around 50, but that is still only about one-third of the average in a normal year. Tensions in the Middle East have also not fully eased, as clashes between Israel and Hezbollah continue.
The rise in the won–dollar exchange rate is also seen as a key factor limiting the drop in fuel prices. Since crude oil is settled in dollars, a weaker won means import costs in local currency remain high even when global oil prices fall.
The monthly average won–dollar exchange rate this month stood at 1,528.55 won, up 37.16 won from the previous month’s average. That is the highest level since the IMF Crisis in 1998, and it is offsetting much of the cost savings from lower oil prices.
Meanwhile, industry officials say the lagging effect of the government’s domestic price cap is also having an impact. During the period of surging international oil prices, government controls limited retail price increases, causing cost burdens to accumulate across refiners and distributors. Now, as oil prices fall, companies are beginning to reflect some of that pressure in prices. The amount of suppressed price increases caused by the cap is estimated at about 200 won for gasoline, 300 won for diesel, and 400 won for kerosene.
moving@fnnews.com Lee Dong-hyeok Reporter