Price Cap System's Effect Confirmed... Regular Gasoline Prices Fell by Up to 239 Won per Liter Relative to Premium Gasoline

KIET analyzes 1,512 gas stations nationwide
Price-cushioning effect seen in all policy periods
"Fiscal burden and weaker supply incentives must also be considered"
Recommends exit strategy based on international oil prices and exchange rates

Yonhap News Agency

Since the government introduced the petroleum price cap system, the increase in regular gasoline prices has been smaller than that in premium gasoline prices. At the start of the policy, the relative price gap fell by 45.75 won per liter, and later widened to as much as 239.48 won. However, concerns have been raised that an exit strategy is needed to adjust or end the system in line with market conditions, including international oil prices and exchange rates, given the fiscal burden of keeping it in place over the long term and the risk of weakening incentives to increase supply and conserve energy.

According to a report titled “The Price-Stabilizing Effects of the Petroleum Price Cap System,” released on Oct. 23 by the Korea Institute for Industrial Economics & Trade (KIET), the relative price of regular gasoline compared with premium gasoline fell in every policy period after the price cap system was introduced. KIET compared price changes for regular and premium gasoline sold at the same gas stations, using daily price data by station from Korea National Oil Corporation’s Opinet covering Jan. 1, 2023, through Sept. 16, 2026.

The main analysis used data from 2025 onward for 1,512 gas stations nationwide that sold both types of fuel every day from Jan. 1 through Sept. 16, 2026. Premium gasoline was used as the benchmark because, while it was affected by shared cost factors such as international oil prices and exchange rates, it was not directly subject to the price cap system.

The relative price of regular gasoline fell in all three periods defined by the timing of adjustments to the supply price ceiling. During the first period under the price cap system, from March 13 to 26, the relative price of regular gasoline compared with premium gasoline fell by 45.75 won per liter. The decline widened to 165.51 won during the second through sixth periods, from March 27 to June 26, and to 239.48 won from the seventh period onward, covering June 27 to Sept. 16.

However, these figures do not mean that the actual retail price of regular gasoline fell by as much as 239.48 won per liter compared with before the price cap system was introduced. Rather, they mean that the price of regular gasoline fell by that amount relative to premium gasoline, which was used as the benchmark for comparison.

Similar results were found when the starting year of the analysis and the gas station sample were changed. The relative price continued to decline even when the starting year was changed to 2023 or 2024. By region, the relative price of regular gasoline also fell in all 17 cities and provinces during the second through sixth periods and from the seventh period onward.

KIET said the findings suggest that the price cap system may have cushioned sharp price increases or accelerated the pass-through of cost declines to retail prices. However, it cautioned that the results should be interpreted carefully, as the analysis assumes that the policy had no direct or indirect spillover effects on premium gasoline and that, without the policy, average price changes for the two types of fuel would have been the same. Differences in costs, demand and inventories between the two fuel types may also have affected the estimates.

The report said that the costs of maintaining the system over the long term should be considered alongside its price-stabilizing effects. A prolonged price cap could increase the government’s burden of compensating for losses and weaken price signals that encourage increased supply and energy conservation.

Lee Hong, a senior research fellow at KIET, said, “The price cap system should be used to cushion sharp oil price shocks, while also assessing the burden of compensating for losses as the system continues, the weakening of incentives to increase supply and conserve energy, and the fairness of how its benefits are distributed.” He added, “An exit strategy should be developed by comprehensively considering international product prices and exchange rates, the extent to which the price ceiling constrains actual supply prices, and the extent to which changes in supply prices are reflected in retail prices.”

The report also said the government should announce in advance the criteria and timeline it will use to decide whether to adjust the system. Once market-stabilization conditions are met, the government should decide whether to adjust or end the system by weighing the cost of maintaining it against the risk of prices rising again after it is lifted. KIET also said the timing of the policy transition should be coordinated to avoid overlapping adjustments to fuel taxes or reductions in other support measures.

As the price cap system is scaled back, the report proposed focusing support on vulnerable households and essential transport sectors. Lee said, “The system’s net benefits should be assessed by comparing consumers’ actual savings in spending, taking into account the volume of fuel sold, with the government’s loss-compensation payments and administrative costs over the same period. Prices and supply conditions should also continue to be monitored after the system ends.”

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