Dubai crude price hits $104, Dow plunges 107 points

Fears over a third oil shock are rising with major global financial institutions forecasting a steep rise in crude oil prices of up to 220 U.S. dollars a barrel due to turmoil in the Middle East.

Korean officials said Thursday that inflation will likely rise to 5 percent this month, far higher than the government target of 3 percent.

Japan`s top securities company Nomura said in a report Wednesday, “If Libya and Algeria suspend oil production, the price of oil could shoot up to 220 dollars a barrel.”

Nomura analyst Michael Lo said, “If Libya and Algeria were to halt operations, OPEC`s spare capacity will also likely fall to 2.1 million barrels per day, which is similar to the level in summer 2008 when oil prices soared to 147 dollars a barrel.”

Goldman Sachs also warned of a rapid rise in crude oil prices of up to 150 dollars per barrel, saying protracted unrest in Libya will affect oil production in other Mideast countries such as Saudi Arabia and send oil prices surging to their biggest gains in more than two years.

Oil prices worldwide surged to record highs Wednesday. Korea’s benchmark Dubai crude rose to 104.33 dollars, surpassing the 100-dollar mark for three consecutive days. Brent crude was traded at 111.37 dollars the same day, up 5.3 percent from Tuesday and the first breaching of the 110-dollar level since September 2008.

Major stock indexes also tanked the same day with the Dow Jones Industrial Average plummeting more than 100 points for two straight days and stock prices in Europe sliding for four days in a row.

The Dow slipped 107.01 points or 0.88 percent from the previous day to close at 12,105.78. London`s FTSE 100 was down 1.04 percent and the German DAX 30 sank 1.69 percent.

Korea’s benchmark stock index KOSPI also fell 11.75 points or 0.6 percent to close at 1,949.88, falling under the 1,950 level for the first time since Dec. 1 last year.

The won dropped 7.2 points to close at 1,131.2 against the U.S. dollar, the first time for the Korean currency to enter the 1,130 range in two months.

hyejin@donga.com