Dubai Oil Price Hits New Record High of 85 Dollars

The bad effects of the U.S. subprime mortgage crisis and the high price of oil caused stock prices in South Korea and other Asian countries to nosedive on November 2.

The price of Dubai crude surpassed 85 dollars per barrel for the first time in history.

With the continual jumps in raw material prices, such as crude oil prices, and the gloom over the possibility that the world economy will stagnate starting with the U.S., some are raising voices of concern over global stagflation (rising prices while growth rates stagnate).

On the same day, the Asian stock market fell on concerns over high oil prices, the insolvency of subprime mortgage loans, and nose-diving stock prices in the U.S.

The Seoul KOSPI index closed at 2,019.34, 43.80 points (2.12%) lower than the previous day. The KOSDAQ closed down 11.84 points (1.46%) at 797.66.

The Nikkei closed at 16,517.48 yen, 352.92 yen (2.09%) lower than the previous day, and China’s Shanghai Composite Index closed at 5,777.81 after dropping 136.48 (2.31%).

Ahead of all this, the New York stock market on November 1 dropped steeply on unfavorable investment indicators on Citigroup, which led to concerns over the serious damage on financial institutions that could be caused by the subprime mortgage insolvency.

The Dow Jones Industrial Average closed at 13,567.87, lower than the day before by 362.14 points (2.60%), and the NASDAQ Composite Index closed at 2,794.83, down 64.29 points (2.25%).

Stock market experts analyzed that concerns over the subprime mortgage insolvency and the dull growth of the U.S. economy will influence the world stock markets.

According to Korea National Oil Corporation on November 2, the spot price of Dubai oil traded on the previous day rose steeply 4.39 dollars to close at 85.69 dollars per barrel, hitting a new high. In a report publicized in September, the Samsung Economic Research Institute analyzed that, “The marginal limit of the Dubai oil price, meaning the greatest price shock that the world economy is able to absorb, is around $84 per barrel.”

The steep rise in the price of Dubai oil is a reaction to the decrease in crude oil reserves of the U.S., which led to the jump in global oil prices the previous day, and the effects of the interest rate cuts by the U.S. Federal Reserve Bank.

The futures price of West Texas Intermediate for December delivery on New York Mercantile Exchange closed at 93.49 dollars a barrel, down 1.04, and the futures price of Brent North Sea crude oil ended at 89.72 dollars a barrel, down 0.91 dollars.

Due to the jump in global oil prices, the price of gasoline sold at domestic oil stations also hit a new high.

According to the Korea National Oil Corporation, a sample investigation of 1,100 oil stations nationwide in the last week of October (October 29-November 2) revealed that the average market price of unleaded gasoline jumped by 13.29 won, compared to the previous week, to 1568.38 won per liter, hitting a new high.

The upward slope in the price of raw materials, such as crude oil and crops, is worsening the prospects of stagflation. If the U.S. economy stagnates, the world economy will slow down, and Korea will probably be hit hard because of its high dependency on exports.

higgledy@donga.com swon@donga.com