[Heavy Industry ON] Oil Price Surge Raises Concerns Over Prolonged Price Ceiling... Refiners on Alert

Oil Prices Surge Again amid Threat of Strait of Hormuz Re-Blockade
Prolonged Enforcement of Petroleum Price Ceiling Expected
Growing Concerns over Declining Profitability in Refining Sector

Due to escalating tensions in the Strait of Hormuz, international oil prices, which had been declining over the past month, are now surging again. As domestic refiners face growing challenges in crude oil procurement, concerns are mounting that the government's petroleum price ceiling system, currently in place, could persist longer than initially anticipated, making it inevitable for refiners to experience further setbacks in their performance even after the so-called 'reverse lagging' effects expected in the second half of the year.

Among Korean vessels trapped in the Strait of Hormuz after the Middle East war, the first to exit the strait, HMM's ultra-large crude carrier (VLCC) "Universal Winner," approached the offshore oil transfer buoy for crude oil unloading in the waters off Ulsan on the 10th. Photo by Yonhap News

On the 15th (local time), September Brent crude futures on the European ICE Futures Exchange closed at $84.95 per barrel, up 0.26% from the previous session. On the New York Mercantile Exchange, August West Texas Intermediate (WTI) contracts also rose 0.33% to $79.60 per barrel.

This is a result of the United States and Iran reverting to confrontation after appearing to have reached an agreement. The US conducted nighttime airstrikes against Iran for three consecutive days, while Iran retaliated by targeting US military bases in the Middle East, including those in Bahrain. Ultimately, after 60 days of negotiations and a mutual agreement to reopen the Strait of Hormuz, Iran declared it would re-blockade the Strait, breaking the agreement.

The uncertainty surrounding the performance of domestic refiners has thus been prolonged. However, as tensions around the Strait of Hormuz have dragged on for several months, the industry is responding more calmly than before. The sector assesses that, since both current import volumes and reserve stockpiles are at sufficient levels, the likelihood of an immediate supply shock is low. Even so, with instability in the Middle East persisting, the costs of crude procurement and volatility in international oil prices are increasing, so refiners are maintaining an emergency response system and closely monitoring the situation.

An industry official stated, "For now, we have sufficient import volumes and reserves, so the chances of an immediate supply disruption are not high," but added, "If supply chain risks persist, greater uncertainty could drive up crude import costs."

Nevertheless, should an actual blockade be realized, the long-term impact is seen as unavoidable. Another industry official said, "We are securing Middle Eastern crude oil by utilizing alternative ports that do not require passage through the Strait of Hormuz, such as Yanbu in Saudi Arabia and Fujairah in the United Arab Emirates," but cautioned, "Though there is currently no issue with immediate supply, if the current situation drags on, securing enough crude oil for the second half of the year could become difficult, so we are maintaining an emergency response posture."

With tensions in the Strait of Hormuz persisting and oil prices climbing, there are also projections that the application of the petroleum price ceiling system could be prolonged beyond initial expectations. The government implemented the ceiling for the first time on March 13 and has maintained it since then. Until the eighth round of the price ceiling, gasoline will be supplied to gas stations at 1,784 won per liter, diesel at 1,773 won, and kerosene at 1,380 won. An industry official expressed concern, saying, "If the price ceiling is extended longer than expected, the burden on the industry will inevitably increase."

Gas station fuel prices have been on a downward trend. According to Opinet, as of 9 a.m. on the 16th, the national average retail price of gasoline stood at 1,875.42 won per liter, down 0.65 won from the previous day. Diesel also fell by 0.95 won to 1,859.75 won, remaining stable. However, changes in international oil prices are typically reflected at the pump with a lag of about two to three weeks.

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