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Oil Prices Have Stabilized

Posted September. 05, 2005 07:06,   


The Korean government decided to tap its strategic oil reserves in mid September to help curb soaring oil prices.

The decision follows an agreement by the International Energy Agency (IEA) Friday that all member states pour oil reserves into the global market to deal with surging oil prices in the wake of Hurricane Katrina.

The move has contributed to lowering oil prices slightly. But experts are voicing mixed views on whether oil prices will stabilize in the long term by tapping oil reserves.

The Korean Ministry of Industry, Commerce and Energy announced on September 4 that it would release 96,000 barrels a day for 30 days, or a total of 2.88 million barrels, in compliance with the agreement with the IEA.

The 26 IEA member nations including Korea will tap two million barrels a day for 30 days, or 60 million barrels in total, starting in mid-September.

Korea’s release amounts to 3.8 percent of its 74.65 million barrels of oil and petroleum products it has as of the end of July.

Oh Young-ho, the head of the ministry’s energy and resource policy office, said, “We decided to accept the request of IEA because a fraction of total oil reserves is to be released, and the oil release will have limited impact on the domestic market,” adding, “It will be released before the 18th of this month.”

The IEA member nations’ decision to tap oil reserves has stabilized soaring international oil prices.

West Texas Intermediate was traded at $66.92 a barrel on the market on September 2, $2.57 lower than the previous day.

Dubai crude and Brent oil were traded at $59.19 and $65.82 a barrel, $0.26 and $1.15 lower than the previous day, respectively.

Gu Ja-gwon, the head of the overseas research team of Korea National Oil Corporation, said, “Increasing supply by two million barrels a day, which is beyond the market expectation, has a great significance,” adding, “It will greatly help stabilize international oil prices for some time.”

But some point out that the oil release will have limited impact on international oil prices, because oil reserves of member nations are mostly crude oil, whereas it is oil products such as gasoline that are expected to be in short supply.

Kim Hyun-jin, senior researcher of the Samsung Economic Research Institute, said, “Katrina has damaged refineries in the Gulf of Mexico. So we may not have enough refineries to refine crude oil which will be supplied additionally.”

In the meantime, Wall Street economic analysts estimate that the financial cost of the hurricane will reach 100 trillion won and could lower the U.S. growth rate by up to one percentage point.

The southern region including New Orleans which was hit the hardest by the hurricane is the nation’s hub of oil and cereal production, accounting for 1/3 of the U.S. oil production, 1/5 of natural gas production and 40 percent of cereal exports.

Global investment banks including Goldman Sachs and Lehman Brothers revised their U.S. economic growth forecasts downward for the third quarter.

Chang-Won Kim changkim@donga.com