New trading system expected to stabilize oil prices and improve transparency


The Korean government said on Friday it would kick off a spot oil electronic trading system within March to help rein in stubbornly high oil prices and improve transparency in the local oil market.

The electronic market will be run by the Korea Exchange, the country’s bourse operator, and government officials said the new system will contribute to stabilize oil prices.

Korea relies on foreign imports for all of its oil needs, a situation that tends to put pressure on the broader economy when oil prices remain high.

The plan was announced at a price stabilization meeting presided by Finance Minister Bahk Jae-wan on Friday. The spot oil marketplace and other measures were discussed as concerns mounted that high oil prices and a hike in food prices might undercut the already sluggish domestic spending.

To promote the spot oil market and activate transactions, sellers on the marketplace would be given a tax incentive of up to 0.3 percent, the Finance Ministry said.

Bahk also noted that the new market would play a key role in lowering price instability. “Up until now, Korea resorted to Singapore’s international oil prices as standards, which could not reflect the domestic supply and demand correctly and in a timely manner,” he said.

Bahk said other advanced markets such as the U.S. and Japan take into account factors such as international prices, futures market prices and supply and demand situations to minimize price volatility.

Once the electronic market goes into a full swing, competition will intensify among oil refineries here, thereby affecting the prices of oil sold across the nation.

Major domestic oil firms will be the main sellers, while franchise dealers and gas station owners will join as buyers on the trading system. Except for individuals and brokerages, any entrepreneur in the oil industry would be allowed to take part in the trading.

The KRX said that four or five refiners and exporters and around 50 franchise dealers are expected to participate in the new spot trading system, while one-third of a total of 12,000 gas stations nationwide may join as buyers.

The Finance Ministry said other oil-related polices in connection with gas stations will be implemented as well in a bid to strengthen its supervision on oil quality.

By Yang Sung-jin (insight@heraldcorp.com)