Soaring oil prices are likely to cast a dark cloud over the global economy. South Korea is also expected to feel the pinch of higher crude prices. Market watchers expressed worries as U.S. West Texas Intermediate hit an intra-day record of $80 a barrel Wednesday, up from the previous high of $78.77 a barrel reached early last month. The surge came despite a move by the Organization of the Petroleum Exporting Countries (OPEC) to increase production by 500,000 barrels per day starting Nov. 1.
Oil traders on global markets seemed disappointed at the OPEC production plan. Some of them said the organization should expand production by one million barrels a day if it really wants to stabilize prices. The last oil price jump was attributed to strong demand and a rapid fall in oil inventories. The U.S. Department of Energy reported a 7.1 million barrel drop in its oil stocks to 322.6 million barrels, the lowest in eight months.
Some analysts predict that crude oil prices will climb above $100 a barrel next year, escalating inflationary pressure and raising fears of an economic slowdown. China has enjoyed high economic growth over the past several years and the boom has required it to depend on more energy imports, creating excess demand for oil on the international market. Many oil-producing nations in the Middle East have also helped create a shortage of oil as they consumed an increasing portion of their production for their own development projects.
According to the International Energy Agency (IEA), daily global demand for oil increased by eight million barrels during the 2000-2006 period. About 32 percent of the hike was prompted by China, 22 percent by OPEC member countries and 12.5 percent by the United States. The figures show that China has become a glutton for oil. Against this backdrop, climbing oil prices are predicted to increase production costs for Chinese manufacturers, who will have to sell their goods at higher prices on overseas markets. This will likely trigger worldwide inflationary pressure and lead to a global economic downturn.
The Korean economy is also forecast to experience such pressure. South Korea is not an oil producing country and its energy consumption is heavily dependent on oil imports. The higher oil prices become, the more expensive Korean products get. Therefore, Korean-made goods are losing their price competitiveness. Worries are growing that the export industry, which has traditionally led Korea's economic growth, will inevitably suffer from a slowdown due to soaring oil prices.
Especially, the world economy faces downward growth in the wake of the global credit crunch arising from the U.S. subprime mortgage turmoil. Economic policymakers are still underestimating the impact of surging oil prices and the contagious effect of global credit turbulence. But they will have to be more vigilant over the rapidly changing economic situation. They need to work out timely measures to cope with negative economic factors before it is too late.