Refiners face 'multiple arrows' as rising oil costs, price caps, export controls and probes all converge

Drivers fill up their cars at a gas station in Seocho District, southern Seoul, on March 26. [NEWS1]

 
Rising oil prices are expected to boost Korean refiners’ first quater earnings, but industry sources say the gains may not reflect growing cost pressures as a new round of fuel price controls and export restrictions adds to the strain.
 
The measures come as refiners contend with supply instability tied to the war in the Middle East, which has disrupted crude flows and driven up procurement and transportation costs.
 

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Public scrutiny has also intensified, amid a widespread perception that refiners benefit from higher fuel prices during wartime. An antitrust investigation into the country’s refiners has been underway following a surge in fuel costs after U.S. and Israeli strikes on Iran in February, with authorities suspecting the companies of coordinating domestic oil and petroleum product prices.
 
“We’re getting hit by multiple arrows at once. But what can we do? We have no choice but to cooperate as best as we can,” a source from within the refining industry said Thursday.
 
A second round of the government's fuel price cap system took effect at midnight Thursday, setting a ceiling on wholesale prices of gasoline and diesel supplied to gas stations, the Ministry of Trade, Industry and Resources said. The measure follows an earlier round introduced on March 13.
 

A vending machine selling plastic garbage bags in Seoul is seen almost empty on March 26. [NEWS1]

 
Although the government plans to compensate refiners for losses on a quarterly basis, companies say the immediate financial burden remains significant.
 
“Even if the government compensates us for losses, the amount refiners must absorb upfront is enormous,” another industry source said. “Crude prices have risen, along with insurance and shipping costs. Each company has a different facility structure, so it’s not easy to calculate losses. We’re concerned about how compensation will be determined.”
 
Experts warn that such policies should remain temporary.
 
“A price cap needs to operate for a short period with clear exit conditions,” said Lee Hong, an associate research fellow at the Korea Institute for Industrial Economics and Trade. “If it continues for too long, expanding fiscal compensation could end up burdening everyone, including consumers.”
 

Materials are stored at a warehouse in a plastic factory in Gwangju, Gyeonggi, on March 27. [NEWS1]

 
The government has also begun restricting naphtha exports in an effort to stabilize domestic supply of the petrochemical feedstock used to produce everyday goods such as plastics.
 
Refiners, however, question its impact, noting that export volumes are relatively limited. Naphtha exports totaled about 34.23 million barrels last year, or 11.7 percent of domestic production, according to the Korea National Oil Corp. By contrast, imports reached about 237.54 million barrels, accounting for more than half of domestic demand.
 
“The naphtha we export is heavy naphtha, which domestic facilities do not use much due to yield issues,” explained a source within the industry.
 
At the same time, a widening antitrust investigation has added to uncertainty. Prosecutors on Monday raided the country’s four major refiners — SK Energy, GS Caltex, S-Oil and HD Hyundai Oilbank — as part of a probe into alleged collusion. Authorities reportedly seized dozens of mobile phones, including those belonging to top executives.
 
“Regardless of the outcome, being tied to allegations of collusion for a prolonged period is itself a risk,” another industry insider said.
 

Drivers fill up their cars at a gas station in southern Seoul on March 26, a day ahead of the government’s second round of fuel price caps. [NEWS1]

 
Refiners are also expressing concern about their first-quarter earnings, which are expected to rise due to inventory valuation gains as global oil prices increase. Companies bought crude at lower prices earlier, so higher prices now have boosted their reported profits.
 
Industry sources have emphasized that such gains do not reflect actual operating conditions. Supply disruptions have forced refiners to secure crude from countries such as the United States and Russia at higher premiums, while also absorbing increased freight costs.
 
“If we report high operating profits during a war, we fear it could trigger discussions about a windfall tax,” one industry insider said. “If Korea depended more on imports without domestic refiners, like some Southeast Asian countries, the impact would be far worse. Refiners play a key role as national energy infrastructure, yet we risk being seen only as targets of criticism.”
 
Another source said rising costs further complicate the picture.
 
“Crude prices have gone up, but so has the [dollar-won] exchange rate, which increases costs. With the price cap affecting selling prices, we need to examine how much profit refiners are actually making,” the source said. 
 
“Even if the war ends soon, restoring Middle Eastern facilities and production levels will take time, so recovery won’t be easy.”


This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY LEE SU-JEONG [kim.juyeon2@joongang.co.kr]