By Lee Hyo-sik
Staff Reporter
An era of cheap crude oil will likely come to an end in the near future, with the ongoing global economic recovery pushing up oil prices to pre-crisis levels on the back of surging demand, particularly from China and other rapid growing emerging economies.
Rising oil prices are emerging as one of the two biggest threats to Asia's fourth-largest economy, along with the rapid appreciation of the local currency.
The Korea National Oil Corp. (KNOC) said Thursday that international crude will likely exceed $100 per barrel soon, citing a faster-than-expected global economic rebound.
``With concerns over the world economy falling into a double-dip downturn and sluggish crude demand, oil prices remained largely tamed in 2009. Also, expectations for the U.S. and China to implement an exit strategy early this year have kept crude costs relatively benign. But with the global economy showing a steeper upward curve over the past two months, many project that oil prices could surpass $100 per barrel probably by summer,'' KNOC said in a report.
It said if the world economy grows at its current pace and speculative demand and tight global supply reoccur, as in the summer of 2008, it is not difficult for crude prices to go beyond $100 a barrel in 2010.
According to KNOC, West Texas Intermediate for May delivery soared $1.99 to $86 per barrel in New York Wednesday from the previous day's trading. Also, Dubai Crude, which accounts for most of Korea's oil imports, closed at $83.48, up 50 cents.
Analysts said that with higher crude costs, the nation has to pay more to import oil and thus the costs of goods and services rise here, which will slow business activity and cut consumer spending.
They suggest that the government promote the use of renewable energy and curb rises in consumer prices, with companies enhancing non-price competitiveness and slashing operating costs to improve their bottom lines.
``Crude prices will likely head upward down the road in line with improving global economic conditions. In order to prevent the reoccurrence of what happened in the summer of 2008, Korea should make every effort to minimize the negative fallout of high oil costs on its export-oriented economy,'' Hyundai Research Institute executive director Yu Byoung-gyu said.
Yu said the rising prices of international oil have a negative impact on the economy as they create greater inflationary pressure and dampen corporate investment and private consumption. Higher costs also worsen the country's current account balance.
``Policymakers should make more efforts to cut Korea's reliance on oil and other conventional fossil fuels to make its economic structure more energy-efficient and environment-friendly. They need to promote the use of solar and wind power, and other renewable energy sources. Businesses also need to take a range of cost-cutting measures to cope with rising raw material prices and improve profitability,'' he said.
The institute said that if international prices of crude oil and other raw materials grow by 50 percent, the price increase will lower the country's economic growth by up to 0.15 percentage points.