China, India Boost Refining Margins with Low-Cost Crude

China and India are enhancing their refining margin competitiveness by utilizing low-cost crude oil from Russia and Iran. In contrast, South Korea is facing rising crude oil procurement costs. Due to the prolonged Middle East conflict, South Korea, unlike China and India, finds its use of low-cost crude from Western-sanctioned countries like Russia and Iran virtually restricted, leading to an increased reliance on relatively more expensive Middle Eastern crude. China has been increasing its proportion of Russian crude imports and boosting indirect Iranian crude imports, while India has expanded its procurement of Russian crude and resumed imports of Iranian crude after a seven-year hiatus.

Domestic refiners are diversifying their import sources to regions with relatively lower diplomatic risks, such as the United States, South America, and Australia. However, this strategy has led to increased transportation distances and logistics costs, as well as additional refining expenses, resulting in a deterioration of cost competitiveness.

Despite the accumulating burden on refiners as international oil price hikes are not immediately reflected in domestic sales prices, the government has decided to maintain its policies aimed at stabilizing domestic petroleum product prices. The government will extend the 6th price cap on refined petroleum products and the fuel tax reduction measures until the end of July. The price caps for gasoline, diesel, and kerosene will be frozen at 1,934 won, 1,923 won, and 1,530 won per liter, respectively, while the fuel tax reduction measures—15% for gasoline and 25% for diesel—will also be extended until July 31.

The government plans to expand policy support in line with domestic refiners' de-Middle East strategies, preparing for a prolonged supply instability stemming from the Middle East. Major refiners are increasing imports of crude oil from the United States, South America, and Africa, and the government is expanding policies to subsidize the excess transportation costs compared to Middle Eastern crude for imports from the Americas, Africa, and Europe.