Oil Price Breaks 30 Dollars and High price shocking

As the price of US WTI increases sharply to 30 dollars per barrel, international oil price appears as a main negative factor on Korea Economy in the second half of this year. Particularly, petrochemical, airlines and marine freight industries that expend large amount on oil are monitoring the trends of the oil price with anxiety.

According to Korea National Oil Corporation (KNOC) at 21st, Dubai oil, the main importing type, was traded at 20.01 dollars per barrel increased by 0.35 dollars compared to the previous day. It is the highest price since 14th of May of 26.27 dollars and can be increased further.

Brant Oil of North Sea was traded at 27.24 dollars, dropped by 0.33 dollars, WTI at 29.80 dollars, dropped by 0.05 dollars. In New York Commodity Exchange, the futures price of WTI, September delivery, was traded at 30.11 dollars, highest price for last 18 months.

International oil price has continued its up-ward march since the last April.

The main cause of the increase of oil price is the forecast that US will attack Iraq. After the report that US Navy is looking for civil merchant ship to transfer weapons fro US and Europe to Persian Bay, the anxiety amplifies and the price has increased by 10% for a week.

There are two different forecasts about the trend of oil price. The critical factor on the price, of course, is the possibility of US attacking Iraq.

Some people expect that if US really attacks Iraq, the price of WTI per barrel becomes more than 40 dollars.

However, it there is no attack, the price will be stabilized soon. Lee Moon-bae, the leader of Analysis of Dynamic Information of Korea Energy Economics Institute (KEEI) spoke “daily production of OPEC is 21 million barrel compared to 27 million barrel in 1998, and the energy consumption tends to decrease, so if there is no attack, oil price will decrease.”

The increase of international oil price will worsen Korean current account and affect negatively on the development of Korean economy by delaying the recovery of US economy.

Ja-Ryong Koo bonhong@donga.com