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| Gettyimagesbank |
Crude oil prices reach highest levels in two years
By Yi Whan-woo
Global oil prices have soared to their highest levels in more than two years, dealing a blow to Korea's petrochemical, airline, marine shipping and other industries sensitive to price fluctuations.
On June 16, Brent Crude cost $74.39 per barrel and Dubai, $72.78, their highest prices since April 2019; while U.S. West Texas Intermediate (WTI) closed at $72.15, its highest since October 2018.
All three benchmark products closed in the range of $70 per barrel, Friday.
Of more concern is that their prices are forecast to move up faster and possibly return to $100 per barrel this year for the first time since 2014, thanks to improving fundamentals, and global stimuli to combat the COVID-19 pandemic.
Russell Hardy, chief executive of Vitol, the world's largest independent oil trader, was quoted as saying by the Financial Times that $100 per barrel for oil was "a possibility," although he believed there was enough surplus as OPEC and its allies such as Russia are still restricting supply because of the pandemic.
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| A sign board at a gas station in Seoul shows the price of gasoline and other fuels for car per liter, respectively, Sunday. The average price of gasoline nationwide marked a seventh consecutive week of increases at 1,576.2 won ($1.3) per liter last week, up 11.7 won from the previous week. Yonhap |
Under these circumstances, the petrochemical industry here is jittery as oil price spikes will result in a price rise for naphtha, a crude oil derivate used as a key raw material in the sector.
Soaring oil prices are anticipated to add to the woes of airlines that have been struggling to cope with a steep decline in passenger numbers and sales due to the pandemic.
According to the International Air Transport Association, the price of jet fuel oil increased by 5.5 percent from May to June, at $77.40 per barrel; a 91.4 percent year-on-year increase from June 2020.
"The operating profits of airlines may decline significantly," an industry source said
It noted that the country's flag carrier Korean Air will suffer an annual loss of $30 million if crude oil prices go up by just $1.
For each 10 percent rise in crude oil prices, Jin Air and T'way Air, both low-cost carriers, are projected to lose 7.6 billion won ($6.7 million) and 6.9 billion won, respectively.
The financial burden will be passed on to passengers, as the fuel surcharge imposed on them will be between 4,800 won and 36,000 won for a one-way flight.
Regarding marine shipping, low oil prices were attributed to their strong performance, as seen from the country's top shipper HMM racking up a record operating profit of $905 million in the first quarter of 2021.
"But it will no longer be the case if prices go up," another source said.
The source speculated bullish oil prices could have an even more adverse effect on refiners as their customers may not be able to afford to buy their products and thus demand could fall.
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