Gasoline, diesel prices likely to surge

Gasoline and diesel prices for retail consumers are expected to climb sharply during the second quarter, as global crude oil prices hit the highest level so far this year after touching the estimated bottom in late January.

South Korea’s benchmark gasoline prices, which traded at 1,505.35 won ($1.36) per liter on Thursday, are likely to exceed this year’s record of 1,516.49 on March 19 in the coming weeks, according to research analysts.

They cite a number of external factors, which could shore up oil prices ― Iran mentioning the necessity of an OPEC-led output reduction; IS group’s alleged control of the Iraqi refineries; predictions of fewer-than-expected shale gas production in the U.S.; and uncertainty over the Iran-U.S. nuclear deal.

“There is a high possibility that the U.S.’ crude oil output will slacken from the second quarter. Further, (global) demand for oil is projected to increase from May when businesses enter peak season,” said KDB Daewoo Securities analyst Sohn Jae-hyun.

He projected that the prices could rebound up to $70 per barrel in the coming weeks.

Local analysts also commented that China has been pushing for oil imports at a bargain since the fourth quarter of last year.

West Texas Intermediate and Brent prices hovered around $56 and $63 per barrel, respectively, on Thursday. Dubai crude also continued to rise over the past five trading sessions to close at $58.79 on Wednesday.

International oil prices stayed at about $45 in late January and early February.

The Bank of Korea, in its report, mentioned the ongoing geopolitical risks in the Middles East. The central bank said oil prices are projected to climb starting in the second half of the year.

When the gasoline and diesel prices surge again, the private consumption sentiment is expected to further weaken. Price hikes could also undermine the profitability of many businesses including air carriers.

On Thursday, stock prices of Korean Air and Asiana Airlines dropped by 2.25 percent and 3.88 percent to close at 49,850 won and 8,170 won, respectively.

In contrast, prices of S-Oil posted a daily growth of 1.35 percent to close at 74,900 won. Its price stood at 48,450 won per share on Jan. 16.

By Kim Yon-se (kys@heraldcorp.com)