Third Oil Shock?
By Jane Han
Staff Reporter
Sixty-two-year-old Kim Pil-gyu says he remembers lining up in front of gas stations at the crack of dawn back in the early 1980s, holding two empty fuel containers, ready to hoard before another price hike. It was a typical scene at the time, when the country was suffering the aftermath of the second global oil shock that saw oil reaching $150 a barrel at today's prices.
``It was crazy back then,'' reminisced Kim, who now runs his own gas station in Majang-dong, central Seoul. ``Today's soaring oil prices give me the creeps because it seems like another shock is approaching.''
With crude soaring easily past the $135-mark regularly, the small business owner's concerns are widely shared by experts worldwide.
Global investment bank Goldman Sachs predicts a ``super spike'' in global oil prices, warning that crude could reach $150 to $200 in six to 24 months' time. Morgan Stanley also made similar projections that oil prices could jump to $150 a barrel by early July.
Samsung Economic Research Institute (SERI), a local think tank, says figure-wise, the world is already facing the start of a third oil shock.
Its conversion of figures into today's values shows that the first oil crisis hit in 1973 when the annual average price of petroleum soared to $85 a barrel. Just six year later, the second shock came in 1979 when crude averaged $151.8 a barrel.
SERI says the current mean for this year, as of May, stands around $98.46, explaining that the average figure will reach a ``dangerous level'' once daily prices edge towards $200 a barrel.
Simplifying the forecast, Hur Chan-kook, a senior research fellow at the Korea Economic Research Institute (KERI), says, ``Forget all the figures, can't you just tell that we're suffering from an oil crisis?''
He stressed that there is ``close to zero possibility'' that crude prices will drop any time in the near future because the fundamental factors triggering steep hikes show no signs of waning.
``Demand is outstripping supply,'' said Hur, ``and this demand won't subside soon, especially in emerging countries like India and China.''
Aside from the basic supply and demand formula, political factors are also adding weight to the speculation on a third oil shock.
Last Friday, Israel's Transport Minister and Deputy Prime Minister Saul Mofaz's remarks, warning ``Israel will attack Iran if it doesn't abandon its nuclear program'' immediately spiked the price of West Texas Intermediate by $10.75 to $138.54
``There are a lot of situations that are consistently driving up petroleum prices,'' said Lee Ji-hoon, a senior research fellow at SERI. ``It's not like the previous oil shocks that occurred largely due to a sudden cutoff of supply.''
He explained this is why the government must have a thorough, long-term plan in place to face the challenge that is likely to last for an extended period of time.
Cheong Wa Dae seems to be aware of this, as Prime Minister Han Seung-soo commented Sunday that local oil prices had doubled over the past year, as he publicly dubbed the situation ``the start of a third oil shock.''
Slow or no economic growth and hikes in consumer prices are some of the first and obvious signs of an oil crisis, experts say.
According to the National Statistical Office, consumer prices grew by 4.9 percent last month, recording the highest growth rate since June 2001. However, such rates aren't as steep as those seen in the past. South Koreans dealt with a consumer price hikes of almost 25 percent in 1974 and 29 percent in 1979.
``If we carefully observe the figures, we can see that the past crises were `shocks' in which figures stabilized again,'' said Hur. ``However, the current oil phenomenon is characterized differently in that it may never return to the old times.''
The head of the International Energy Agency said Thursday that the world is probably facing a ``third oil shock,'' citing the latest figures that showed the proportion of global oil expenditures to global gross domestic product is approaching levels that followed the second oil crisis.
Living in the world's seventh-largest oil consuming nation fully dependent on crude imports, South Koreans do not have many options to work around the situation, said Lee.
``Saving energy is the first and best place to start,'' he said.