[Exclusive] Government Cuts This Year's Oil Reserve Procurement Budget by 30%

This Year’s Oil Stockpiling Budget Set at 55.3 Billion Won
Down 24.6 Billion Won from Last Year
Record-High Reserve Release Amid Middle East Oil Shock
Additional Funding Needed to Replenish Depleted Stockpiles

At the Royal Air Force (RAF) Fairford Air Base runway in the UK on the 11th (local time), maintenance personnel from the United States Air Force (USAF) are loading missiles onto a B-1 Lancer strategic bomber, known as the "Death Swan." Photo by AFP Yonhap News

It has been confirmed that this year's government budget for contributions to the oil stockpiling program, which is used for purchasing emergency reserves, has been cut by more than 30% compared to last year. As the government decided to participate in the International Energy Agency (IEA) joint strategic oil stock release, releasing a record-high amount of 22.46 million barrels into the market, criticism has emerged that separate funding measures are needed to replenish the depleted reserves.

According to related ministries on March 12, the Ministry of Economy and Finance and the Ministry of Trade, Industry and Energy allocated 55.3 billion won for this year’s oil stockpiling program budget. This represents a decrease of 24.6 billion won (31%) compared to last year's budget of 79.9 billion won.

The oil stockpiling program budget, included in the Energy and Resources Business Special Account, was nearly doubled from 38.236 billion won in 2022—when reserves were released due to the Russia-Ukraine crisis—to 67.268 billion won in 2023, but has since seen continuous reductions. Of last year’s 79.9 billion won budget, only 61.133 billion won (77%) was actually executed, with the remaining 1.9 billion won carried over. In fact, the actual program execution amount has been decreasing for three consecutive years since 2023.

The main reason for the budget reduction is the decrease in the amount of oil purchased for reserves. Under the 5th Oil Stockpiling Plan, the government set this year’s purchase target at 255,000 barrels. In terms of volume, this is more than a 40% reduction compared to last year’s 430,000 barrels. Even though the expected purchase unit price dropped from $80.31 to $68.89 per barrel due to a decline in international oil prices, the purchase quantity was further reduced.

The government adopts a smoothing strategy for purchasing oil reserves, increasing purchases when international oil prices fall and aiming for price stability by releasing reserves during periods of sharp price spikes.

There are criticisms that the government may have lacked forecasting capability regarding oil supply, as it reduced reserve purchases even amid the downward trend in international oil prices that continued until the Iran crisis occurred. In response, a government official explained, “We reduced the purchase volume to match our target amount.”

In calculating last year’s budget, the government assumed an international oil price of $74.66 per barrel and a won-dollar exchange rate of 1,380 won. However, as oil prices have been fluctuating around $100 per barrel and the exchange rate is staying at the 1,460 won level due to the Iran crisis, additional funding measures are needed to meet last year’s planned purchase targets.

It is possible that a portion of this year’s main budget reserve will be used first, and if insufficient, additional funds may be secured through a supplementary budget. On this, an official from the Ministry of Economy and Finance said, “If the Ministry of Trade, Industry and Energy requests additional funds, we will consider separate funding measures.”

Although the IEA announced a record-high release plan of 400 million barrels of strategic reserves, international oil prices have instead rebounded. On this day, the May contract for Brent crude futures on the ICE Futures Exchange closed at $91.98 per barrel, up 4.8% from the previous session. The April contract for West Texas Intermediate (WTI) crude on the New York Mercantile Exchange closed at $87.25 per barrel, up 4.6% from the previous session.

This content was produced with the assistance of AI translation services.