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In a bid to alleviate the burden of rising consumer prices and bolster confidence, the South Korean government has announced an extension of retail fuel tax cuts until the end of April.
According to S&P Global Commodity Insights, however, industry insiders suggest that this move may not significantly stimulate domestic automotive fuel sales amid a subdued economic environment. Instead, South Korean refiners are expected to pivot their focus towards exporting gasoline and diesel, leveraging improving Asian crack spreads. The Ministry of Economy and Finance disclosed that the tax cuts on auto fuels, which have been in effect since November 2021, will persist, with a 25 per cent reduction on gasoline and a 37 per cent cut for diesel, until April. This extension comes amidst geopolitical uncertainties in the Middle East, which continue to influence global oil price volatility. While the tax cuts aim to alleviate consumer financial burdens, analysts remain skeptical about their effectiveness in boosting domestic demand. With the impending parliamentary elections in April, the government's decision also carries political weight, as it seeks to navigate economic challenges and maintain public confidence in President Yoon Seok-yeol's administration. Despite the tax cut extension, South Korea's gasoline and diesel demand is projected to remain subdued in the first quarter of 2024. Industry experts cite weak private spending, low consumer confidence, and sluggish industrial activity as key factors contributing to the tepid outlook. Data from the Korea National Oil Corporation revealed a significant decline in gasoline and diesel consumption in December 2023 compared to the previous year. Refiners anticipate that gasoline demand in Q1 may struggle to surpass historical levels, hovering around 200,000-210,000 barrels per day (b/d). The cautious sentiment among refiners is underscored by the government's decision not to expand the rate of tax cuts, which could have potentially buoyed domestic demand. In light of the subdued domestic market conditions, major South Korean refiners are poised to prioritize export markets in the first half of 2024. Despite tepid demand in Northeast Asia, opportunities in Southeast Asia, South Asia, and Oceania appear promising, fueled by improving regional cracks and export margins. Platts data shows a positive trend in regional gasoline and gasoil cracks, with prices averaging higher in Q1 compared to previous quarters. This trend, coupled with anticipated economic stimulus measures in China and increased travel demand during the Lunar New Year holiday, suggests favorable conditions for refining margins in the region. As the industry braces for winter heating demand and the spring maintenance season, South Korean refiners remain cautiously optimistic about capturing potential upticks in cracking margins. With eyes on export markets and evolving regional dynamics, refiners are poised to navigate the complexities of the global energy landscape in the months ahead. (ANI)
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