How Will Higher Oil Prices Affect Korean Stocks?

Surging oil prices are a significant factor affecting stock investment in Korea.

Korea National Oil Corp. said yesterday that the prices of Dubai, west Texas intermediate, and Brent crude reached almost 80 U.S. dollars per barrel Monday. Global bodies such as OPEC and the International Energy Agency have also raised their forecasts for oil prices, adding to inflationary pressure.

Not surprisingly, economic recovery usually results when oil prices surge. Recently, however, such prices have approached a level at which Korean stock markets could be negatively affected.

Shinyoung Securities says 80 dollars per barrel is effectively the critical point since Korea’s stock prices have stopped rising around that price.

If the price of oil keeps growing even after surpassing the 80-dollar mark, stock investors will probably have to readjust their portfolios. Higher oil prices will also prompt investors to find new stocks that benefit from higher oil prices.

Stock experts say construction companies and green growth-driven companies will benefit from growing oil prices. High oil prices explain why companies building plants in the Middle East, such as GS E&C, Hyundai Engineering and Construction, Samsung Engineering and Daelim have drawn much attention.

Lee Chang-geun, industrial goods team manager at Hyundai Securities, said, “Middle Eastern nations initially placed orders based on the assumption that oil prices would stay around 40 dollars per barrel. With the price nearing 80 dollars, Mideast sentiment surrounding placing plant orders has improved significantly.”

In addition, experts downplay the fear of a “super spike,” or the price of a barrel of oil exceeding 100 dollars.

Daeshin Economic Research Institute said oil demand in emerging economies such as China and India has gradually increased but consumption in the U.S., the world’s largest oil-consuming nation, fell 3.6 percent in August year-on-year. Over the same period, Europe’s oil consumption dropped seven percent.

turtle@donga.com