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Falling oil price sensitive to changes in price at pumps in Korea

Falling oil price sensitive to changes in price at pumps in Korea

SEOUL: Yoon Kyun-soo, 33, fills up his car once a week at a nearby gas station. Because he commutes from his home in Sangdo-dong, Dongjak District, to his office in Yeouido every day, Yoon is sensitive to changes in the price at the pump.

Since crude oil fell below $100 a barrel in early September, prices have declined steadily. By Wednesday, Dubai crude traded at $55.56 per barrel. The JoongAng Ilbo, using a system by the Korea National Oil Corporation, calculated how much the retail price of gasoline would be if crude were $30 a barrel.

It turns out the price could be as low as 1,308 won per liter ($3.25 per gallon). That’s only about 340 won cheaper than the national average price of 1,651.12 won per liter on Wednesday. Even if crude prices fall 40 percent from what they are today, the price at the pump in Korea could be expected to drop only 20 percent. In essence, that means consumers can expect a liter of gasoline to get no cheaper than 1,300 won per liter. Why wouldn’t the price of petrol fall below 1,300 won? The biggest reason is taxes.

The gasoline tax is 745 won per liter, while the import burden tax is an additional 16 won. Then there is a customs tax of 3 percent and a value-added tax of 10 percent.Even if the crude price falls to $30 per barrel, the gasoline and import burden taxes remain unchanged. Compared to a crude price of $40 or $50, the ratio of taxes to the overall retail price of gasoline would increase. When the crude price is $50 per barrel, taxes would account for 62.7 percent of the price of a liter of gasoline.

This share of taxes would increase to 65.5 percent when crude is $40 a barrel and 68.6 percent at $30. Consumers complain that refiners and gas stations are reluctant to drop the price in order to secure a profit, when in fact it is difficult to expect a gasoline price that is half of what it is today because of the taxes,” said an industry official. Korean refiners already are nervous, and a continuing drop in oil prices is likely to only increase losses even if sales increase.