Singapore — South Korea's retail gasoline prices have outperformed the Asian 92 RON benchmark price to date in 2020, raising the need for a potential temporary government tax relief measure to help domestic consumers get through the difficult economic conditions, industry and refinery officials said.
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South Korea's motor fuel consumers were unable to benefit much from the sharp decline in outright international oil prices and the local currency Won's strength against the dollar in 2020, as the country's high consumption tax on motor fuels kept a firm floor on prices of regular unleaded gasoline.
The price of FOB Singapore 92 RON gasoline, the most liquid Asian gasoline benchmark, averaged $44.86/b to date this year, down 35.5% from the 2019 average of $69.52/b.
In comparison, South Korea's retail motor fuel prices outperformed the Asian middle distillate benchmarks as the scale of decline in domestic pump prices was much smaller.
Pump prices of regular unleaded gasoline averaged Won 1,383/liter ($1.25/liter or $198.8/b) to date in 2020, down only 6% from last year's average price of Won 1,471/liter ($1.33/liter or $211.5/b), according to S&P Global Platts calculation based on latest data from state-run Korea National Oil Corp.
Oil prices may have dropped sharply this year but such price decline couldn't be fully transmitted to everyday consumers due to South Korea's relatively high consumption taxes on motor fuels, middle distillate marketers at two major South Korean refiners said.
"It's in our best interest to serve our customers with quality fuels at reasonable prices based on the international benchmarks and margins," one fuel marketing manager based in Seoul said.
Taxes account for 55% of the retail gasoline price, 46% of the gasoil price, and 30% of the butane price, according to Korea National Oil Corp.
The recent surge in coronavirus cases in South Korea to above 1,000/day could mean that the government may potentially impose Level 3 movement restrictions, the highest level of social-distancing rules.
With many small businesses suffering and the number of temporary and casual jobs declining rapidly, a fuel consumption tax cut should be on the government's economic support agendas, industry analysts and refinery officials told S&P Global Platts.
Driving vs Public transport
Apart from the economic aspect, any temporary consumption tax cut measures would also bode well for the coronavirus spread control, said analysts at Korea Petroleum Association and Korea Oil Station Association.
South Korea consumed 66.8 million barrels of gasoline for the first 10 months this year, down 2.8% from 68.7 million barrels consumed in the same period a year earlier, latest KNOC data showed.
"Gasoline demand didn't exactly fall much this year as people preferred to use their own vehicles to avoid crowds in the public transport system ... more affordable pump prices would encourage more people to commute using their own vehicles, essentially supporting the social distancing campaign," said a market strategist at Korea Oil Station Association.
The Ministry of Economy and Finance had previously lowered taxes on the auto fuels -- gasoline, gasoil and butane -- by 15% for six months from Nov. 6, 2018 until end-August 2019 to help lower consumers' costs amid the country's slowing economy.