SEJONG -- Gasoline prices in South Korea have almost reached pre-pandemic levels, in the wake of a spiral in international crude prices and weak US dollar.

According to the Korea National Oil Corp., gasoline prices climbed to 1,562.7 won ($1.40) per liter as of Monday, which marked the highest in 16 months since it recorded 1,563.3 won on Feb. 4, 2020.

At the current pace of increase, there is a high possibility that prices will exceed 1,571.26 won -- the level recorded on Jan. 20, 2020, when the first infection of COVID-19 was confirmed in the nation -- in late June or early July.

The rebound in oil prices is building up inflationary pressure, though the situation may signal a normalization of the economy and everyday life.

“International crude prices are commonly in inverse proportion to the US dollar, which has weakened in the global exchange market due to investors’ waning preference for safety assets like key currencies,” said a local brokerage firm-based analyst. “The price of the greenback has stayed in the 1,120 won range.” 

Brent crude traded over $70 per barrel to reach $71.89 on June 4, having risen 40.7 percent since Jan. 4 (the first trading session of the year), when it was $51.09.

Prices of Dubai crude, which accounts for the largest portion of Korea’s oil imports, rose 38.3 percent over the corresponding period to also hover over $70 per barrel -- from $50.61 to $70.03.

West Texas Intermediate crude recorded a 46.1 percent surge from $44.62 on Jan. 4 to $69.62 on June 4, which is the highest in about 32 months.

Some overseas investment banks, including Bank of America, are forecasting that crude prices could reach $100 a barrel. They cited factors such as continuously rising demand in the US and Europe and a recent curb in the spread of the novel coronavirus in India.

Foreign media outlets have quoted experts as saying that the international supply of crude is still restricted, though oil producers are poised to revise their earlier plans for a cut in output.

Korean gasoline prices -- which remain under 1,600 won per liter - could be regarded as cheap, compared to past years. But the rapid climb would certainly increase the economic burden on ordinary households and small manufacturers.

A salaried worker in Sejong said that he “is still reluctant to use public transportation due to the pandemic. But it is unnerving to see higher price tags at gas stations as a car driver during commuting hours.”

Concerns are the same with drivers of sport utility vehicles. Diesel prices rose by 11 percent in five months -- from 1,224.63 won per liter on Jan. 1 to 1,359.49 won on June 7.

Some say the current situation, a price spike from a recovery in global demand, is better for the local market than a simultaneous surge in oil and dollar prices caused by geopolitical risks in the Middle East.

An analyst said that the recent slide in dollar prices “could be beneficial in terms of improving purchasing power of local households and businesses, as import prices of foreign-made consumer goods and raw materials, including crude oil, are expected to go down.”

In addition, a cheap dollar is also not always harmful to exporters, he said. “When the dollar surges to over 1,250 won, an export-oriented company should also bear the cost burden from price hikes in imported manufacturing parts.”

Meanwhile, some say a series of new coronavirus strains could be a core factor to determine crude and dollar prices.

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