Oil Price at $48.76, an Inch Away from $50

Oil price soared to $48 a barrel, only one day after it hit $47 a barrel. As the $50 a barrel era approaches, the concern for oil shock grows bigger and bigger.

According to the Korea National Oil Corporation, the U.S. West Texas Intermediate (WTI) jumped by $1.42 to $48.76 per barrel on August 19. This is a new high in spot market prices and just an inch away from $50, which is considered to be a psychological barrier. WTI price of that day was $7.96 and $3.52 higher than last month’s and last week’s prices, respectively.

North Sea Brent climbed by $0.50 from the day before to $44.40, and Middle East Dubai crude also went up by $0.11 to $40.39 and continued its sharp rise. The futures prices also hit new highs. The New York Mercantile Exchange (NYMEX)’s September Delivery WTI escalated by $1.43 and was traded at $48.70. At the International Petroleum Exchange (IPE) in London, Brent crude advanced by $1.30 and closed at $44.33.

Korea National Oil Corporation analyzed, “The news of an explosion in Iraq, which appears to be a terrorist attack, spread nervousness in the market, so oil prices skyrocketed.”

In the meantime, Stephen Roach, a chief economist of an American investment firm, Morgan Stanley, speculated in a report titled “Oil Shock Assessment” on August 19, “With oil prices now in the high $48 range, there is good reason to treat this development as yet another in a long string of energy shocks”.

He also warned, “At the current level of barrels around $47, oil prices are 62 percent above the $29 average that has prevailed since early 2000,” concluding, “The closer to the stall [growth] speed, the thinner the cushion is that is available to withstand the unexpected pressures of an exogenous disruption. Recessions are the rule, not the exception, in that context. That’s very much the risk today.”

Jong sik Kong Chang-Won Kim kong@donga.com changkim@donga.com