Oil Prices Rise, Exchange Rate Falls

The won-dollar rate won dropped to 930 won per dollar yesterday (won currency rise). Dubai oil which represents considerable amounts of domestic oil import volume soared to 68 dollars per barrel the day before yesterday, reaching all-time high.

Exchange rate hits new 8-year low-

The won-dollar exchange rate on the Seoul Foreign Exchange Market was down from the previous day and closed at 934.3 won, dropped by 5.8 won. The figure has set a new record low in eight years and six months since October 24, 1997 (929.5 won).

The won-dollar exchange rate once dropped to 930 won level briefly from 939.8 won on April 24. But since then, the rate has maintained around 940 won after government intervention in foreign exchange markets. Major observers estimated that the core reason why the exchange rate is on the downside is influenced by major countries’ interest rates.

G7 countries, including the United States, forced Asian currencies, including Chinese currency, to be revaluated. This is also working to fuel the exchange-rate drop.

It is predicted that Europe and Japan will step into raising interest rates following the U.S., which hinted the possibility of ending interest-rate hikes. In doing so, the influx of international capital into the U.S. slows and as a result, the dollar becomes weaker, observers said.

Oil prices could reach 100 dollars (per barrel) or more-

On May 2 (local time), the spot price of Dubai oil was traded at 68.33 dollars per barrel, rising by 3.58 dollars compared to that of the former trading day (April 28). This figure surpassed 67.48 dollars, the highest prices recorded on April 24.

Dubai oil prices broke the record of the highest prices eight times in last month. Following this, it is on the upswing this month.

West Texas Intermediate (WTI) rose by 0.81 dollars per barrel to 74.55 dollars per barrel. The price of Brent North Sea crude oil was traded at 74.45 dollars, rising by 0.71 dollars per barrel.

Kim Hyun-jin, a chief researcher at Samsung Economic Research Institute (SERI) predicted, “If the Strait of Hormuz was blocked up due to the increasing tensions between the U.S. and Iran, oil prices (based on WTI) could rise to more than 100 dollars.”

Suk-Min Hong Sun-Woo Kim smhong@donga.com sublime@donga.com