Rising diesel subsidies in South Korea expected to boost consumer confidence during peak driving season

Strong points

Freight truck, taxi drivers are entitled to a diesel subsidy of 8.8 cents/litre

Diesel demand expected to exceed 15 million barrels in June

President Yoon under pressure to revive consumer confidence

Soaring retail diesel prices in South Korea dampened consumer confidence, but higher government subsidy rate and rapid removal of COVID-19 restrictions would lead to higher demand for middle distillate fuel during peak summer driving season, refining sources and industry analysts said in May. 18-20.

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The government would provide more diesel subsidies to truck and taxi drivers, who are suffering from soaring prices at the pump, to lighten their fuel burden and boost consumer confidence, the ministry said. ‘Economy and Finance on May 18.

The government will lower the diesel threshold price set for subsidy payments to 1,750 Won/litre ($1.37/litre), from 1,850 Won/litre ($1.45/litre), currently effective June 1 , the ministry said in a statement.

The government will compensate half of the difference between the average retail price and the threshold base price through subsidies, the ministry said.

The threshold price will be lowered from 100 Won/l to 1,750 Won/l, which will allow the government to provide more subsidies as the gap between the basic price and the retail price widens, thus reducing diesel refill costs for drivers.

Since diesel is currently sold at an average of 1,976 Won/l ($1.55/l) at gas stations, truck and taxi drivers would be entitled to receive half of the difference between the new base price of 1,750/l, which equates to approximately Won 113/l (8.8 cents/l), as calculated by S&P Global Commodity Insights. This would be up from Won 63/l (4.9 cents/l), based on the current threshold price of Won 1,850/l.

The government has also decided to extend the subsidy program for two months until the end of September, the ministry said. The government first offered diesel subsidies on May 1. The grant program was originally scheduled to expire on July 31.

The diesel subsidies were applied to diesel logistics vehicles across the country, including 445,000 freight trucks, 21,000 buses, 9,300 taxis and 1,300 freighters, according to the ministry.

The move comes as retail diesel prices rose above gasoline prices on May 11 for the first time since the global financial crisis amid diesel shortages in Asia and around the world.

The retail price of diesel has long been set at a discount of about 200 Won/l (15.7 cents/l) compared to gasoline.

However, the national average daily retail diesel price increased to 1,946 Won/litre ($1.517/litre) on May 11, surpassing the average price of 92 RON unleaded gasoline by 1,945 Won/litre ($1.516 /liter) on the same day, Korea National Oil Corp. the data showed. The last time diesel was superior to gasoline in South Korea was in August 2008, according to KNOC.

Despite soaring prices at the pump, the country’s overall auto fuel demand is expected to rise in the coming months as Seoul lifted most restrictions on mobility, social distancing and international travel in April, distillate distributors means from major South Korean refiners, including S- Oil said.

Monthly diesel demand could exceed 15 million barrels in June and July, compared to 12.5 million barrels consumed in March, according to middle distillate distributors.

South Korea’s new President Yoon Seok-youl’s administration is under enormous pressure to rein in inflation, curb rising fuel prices and improve overall consumer sentiment, amid soaring fuel prices. diesel fuel that has sparked protests from truck and taxi drivers in recent weeks, according to analysts at the Seoul-based Korea Petroleum Association.

The government extended oil tax cuts to a record 30% in April for three months from May, up from 20% earlier, as part of its effort to ease upward pressure on the inflation and soaring energy prices.

Tax cuts have resulted in a relative increase in the price of diesel, due to higher taxes on gasoline than on diesel. Taxes represent almost 50% of the retail price of gasoline, 40% of the price of diesel and 30% of the price of butane.

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