The KRX oil market, which marks its eighth anniversary this year, contributed to cutting consumer prices of petroleum products in Korea, according to oil market analysts.

The market introduced an online competition system for the first time in the Korean petroleum product distribution market which had been dominated by a small number of oil refiners.

The online competition system has been paying off handsomely. Until the end of December, a total of 31 billion liters of oil had been traded in the KRX oil market, which opened in March 2012, said an official of the Korea Exchange (KRX) in early December.

The trade was estimated at 39 trillion won in the KRK oil market. The volume of transactions in the KRX oil market has surged over the past three years, with the proportion of all petroleum product transactions in Korea growing from 6 percent in 2013 to 12 percent as of the end of 2019.

The KRX oil market was introduced in response to criticism that government authorities should improve Korea’s oligopolistic oil market, where petroleum products are distributed mainly by a small number of oil refiners in the past.

In 2008, the price of Dubai crude jumped to $140.70 a barrel, but plunged to $36.45 at the end of the year and rebounded the following year, causing international oil prices to shoot up.

However, there was a problem that prices of domestic petroleum products were properly determined by the fluctuation of oil prices.

With the aim of correcting this problem, the government came up with a plan to enhance the transparency of the oil market and promote competition in 2011.

As part of that, the government opened an e-commerce market for petroleum products at the KRX. Like securities, oil products can be traded competitively in the KRX oil market.

Currently, three types of products traded on the KRX oil market including gasoline for automobiles and diesel and kerosene for heating.

Similar to the stock market, the market’s sales formats are divided into competitive sales in which sales activities are carried out through competition among participants, and negotiation-based sales where sellers and buyers trade oil products through negotiations in order to prevent sudden fluctuations in prices in bulk transactions and support smooth delivery.

Unlike a general stock market, only companies with oil storage facilities set by the Petroleum Business Act, not ordinary people, are allowed to participate in trading oil in the KRX oil market.

Participants will be able to enjoy benefits such as a refund of import charges and a reduction in their corporate taxes.

As of the end of November, 1,961 companies including oil refiners, importers, sales agencies and gas stations, participated as members of the KRX oil market. In general oil refiners and importers sold oil and oil products while dealers and gas stations made purchases of them in the market.

Gas stations that purchased gasoline and light oil cheaply in the KRX oil market through incentives could sell the products at lower prices, taking a cut in the consumer oil prices, according to a report by the Korea Energy Economics Institute.

Gas stations located in close proximity to gas stations that participated in the KRX oil market also benefited due to a price war, the report said.

In the meantime, KRX gold market transactions are surging as interest in gold has been on the uptick. This is because gold is garnering much attention as a safe and alternative investment asset.

As of Nov. 20, the price of a gram of gold traded in the KRX gold market (gold.krx.co.kr) was 67,200 won, up 18.9 percent from the end of last year.

Like this, trading in the KRX gold market also soared as interest in gold as safe and alternative investment assets has inflated.

Since last year, the daily average trading volume in the KRX gold market has been on a sharp rise.

The daily average volume of transactions reached 43.6 kilograms in 2019, up 122.4 percent from the previous year. This year, it stands at 104.8 kilograms, up 140.7 percent from 2019.

A view of the Korea Exchange and the attached buildings in Yeouido, Seoul. (Photo: KRX)