[EDITORIALS]Oil Refineries Not in Step

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[EDITORIALS]Oil Refineries Not in Step

Consumers complain that despite the plunge in global oil prices, Korean refineries are not cutting domestic prices accordingly. Many criticize that refineries are quick to raise local oil prices when global prices go up, but are sluggish in lowering them. International crude prices jumped briefly following the Sept. 11 terrorist assault on the United States. The prices have fallen by nearly 30 percent from early September due to concerns over a prolonged economic slump worldwide. The price of Dubai crude oil, the benchmark for oil imported to Korea, is hovering around $17 per barrel, down from an average of $24.16 a barrel in September.

But it was not until October that local oil refineries began to readjust domestic prices. They cut local prices more than three times through Tuesday. Still, the price cuts have lagged behind the drop in global prices. Domestic oil firms cut local gasoline prices from around 1,200 won (94 cents) per liter in September, to 1,150 won, a cut of less than 15 percent from the original cost of 348 won a liter, excluding tax.

Moreover, local refineries did not move to lower the prices until they faced consumers' complaints and the Korea Fair Trade Commission had begun a preliminary investigation into the sales prices and distribution channels. Refineries argue that consumers cannot enjoy a price cut equivalent to the fall in global oil prices because various taxes account for 70 percent of former factory prices.

It is true that no uniform price cut can be made, for the former plant prices include fixed expenses, such as transportation costs and insurance premiums. Nevertheless, refineries' arguments are not convincing enough, considering their quick reaction to a hike in oil prices. Also affecting the stingy price cut is a new system that allows gasoline stations to market various brands of fuel, giving more price-setting clout to vendors.

Lower oil prices ease inflationary pressures and help companies reduce production costs, particularly at a time when the economy is sluggish. Consumers should be more price-conscious in order to trigger stiffer competition among refineries and vendors.
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