Oil Price Tops $50 per Barrel

International oil prices topped a record $50 per barrel on Wednesday.

On the national level, oil price hikes may deal a huge blow to the Korean economy, which has great dependence upon oil energy, and would cause falling economic growth, domestic price hikes, and a worsening current account balance.

According to the Korea National Oil Corporation on Wednesday, West Texas Intermediate (WTI) crude oil for November delivery hit $50.47 per barrel on Tuesday in after-hours trading on the New York Mercantile Exchange (NYMEX) and closed at $49.90, up by $0.26 from the day before. Both the starting and closing prices for WTI recorded the highest mark since crude oil futures trading began on the NYMEX in 1983.

London Brent also hit the highest mark of $47.07 a barrel for the first time, an increase of $0.20.

Dubai Crude has surged by $1.34 to $38.14 per barrel, reaching the $38 mark again since it reached the mark a month ago.

The oil price hike on Wednesday was largely due to the speculations that U.S. inventory data would show tighter supplies as a result of Hurricane Ivan and fears over insufficient global supplies, owing to the political worries in Nigeria, one of the biggest oil producing countries.

Thanks to the oil crunch, the Korean economy also faces threats. Economists worry that the oil price hike may lower economic growth and cause some impact on the domestic price, leading to stagflation with a deepened economic slump accompanied by a general rise in prices

The Korea Energy Economics Institute estimates that when the oil price rises by $1 per barrel every year, the growth rate for the Gross Domestic Product will fall by 0.1 percent; consumer prices will increase by 0.15 percent; and current account balance will be lowered by $750 million. Since industries believe that high oil prices would raise the cost price and worsen the productivity of exporters, some corporations have already taken emergency management measures to cope with the oil price increase.

Jeong Mun-geon, senior managing director of the Samsung Economic Research Institute, said, “It is said that the American economy can handle prices up to the $50 per barrel mark, but it will not be able to avoid the impact when the oil price stays above $50.” He added, “If the oil price stays high, it will create a huge blow to the Korean economy, which is vulnerable to overseas variables, with worsening growth in trade.”