Populism and the oil market

Last week, the petroleum product supply prices of each refinery were disclosed for the first time. That included the prices for gasoline.

It was expected that when the prices that oil refiners charge gas stations were released to the public, prices would decrease. But once the numbers were out, it only caused further confusion among the public.

Products that were supplied at a low price to gas stations were selling at much higher rates, and vice versa.

This contradiction was due to an oversimplified calculation of oil prices across the nation that overlooked differences between regions or marketing strategies.

Consumers complain that they’ve been paying too much at the pump, while refineries and gas stations say they’ve been portrayed as having jacked up the prices when they themselves don’t stand to gain much.

Korea’s oil market is essentially open. The consumer price is determined by intense competition between refineries and between gas stations. It is difficult for companies to make substantial profits without engaging in collusion.

The supply prices set by the different refineries reflect discrepancies in shipping costs that are dependent on the distance from the factories, the amount of gas provided, the amount of competition at the given gas station, and the retail structure of each refinery.

In other words, it’s difficult to set a standard supply price.

And pressing ahead with an announcement about supply prices at each refinery without consideration of these variables was an impractical move swayed by populism.

The decision to reveal the prices of individual refineries was prompted last year when, amid skyrocketing international oil prices, the government tried to keep a lid on local oil prices.

The intent was to pass responsibility for rising oil prices to the refineries and the gas stations, in order to placate angry customers.

But this attempt to institute price controls will not work, and instead will only restrict open competition.

Apparently, the current administration has not learned anything from the previous administration’s policy of releasing the prices of apartments up for sale, a policy that crashed and burned with an untold number of negative side effects.

The government must withdraw its policy to release oil supply prices, or risk adding fuel to the current anti-corporate sentiment.

Consumers are smarter and wiser than the government thinks.