Go to contents


Korea Economy Stuck in a Swamp of Vicious Circle

Posted May. 13, 2004 21:20,   


Oil futures prices, which allow people to estimate how the development of the international oil price would be in the near future, have soared up to reach the highest point in the history. In addition, the average price of importation inflow to Korea in the last month has recorded its largest raise in the recent three years.

According to this, the anxieties that expect a vicious circle that flows from oil price ascension, skyrocketing public price, shrinkage of household consumption, and finally into the recession of domestic sales can obstruct the prosperity of Korean economy, which is currently at a poor condition.

According to the Korea Oil Corporation on May 13, June’s delivery of Western Texas Index (WTI) oil transacted at the New York Merchandise Exchange (NYMEX) has wrapped up the market at $40.77 per barrel, showing a $0.71 increase from the previous day. Based on the closing price, this is the highest level ever since the first oil futures began trading in 1983. June’s delivery of the futures prices of Northern Sea Brent Oil that has been dealt with at the London International Oil Exchanges has also increased up $0.59 from the previous day to $37.95, the highest point since October 1990.

The spot price of Middle East Asian Dubai Oil has neared the psychological resistance level, $35, by closing at $34.93, a $1.34 increase from the previous day.

The increase of oil price was assessed to have been influenced by the uncertainty of the Organization of Petroleum Exporting Countries(OPEC)’ production increase in the future, and the diminution of the level of U.S. gasoline inventory.

The U.S.’ Energy Information Agency (EIA) has predicted the disproportion of the supply and demand, indicating that as of May 7, the gasoline inventory has decreased by 1.5 million barrels from the previous week, but on the contrary, the average gasoline demand per day rose by 470,000 barrels.

In addition, although OPEC has suggested the possibility of production increase, it has been estimated that the country having the practical capacity of production increase is only limited to Saudi Arabia, stimulating the feeling of uneasiness.

In relation to this, the chief of OPEC, Purnomo Yusgiantoro, stated, “In order to prevent oil shock, we are endeavoring, but still some part of the factors that can influence as to how to decide the oil price are out of OPEC’s control,” suggesting that the current price tendency may continue for a while.

Due to the marked-up price of raw materials along with the international oil price’s ascension, the average price of imported goods totaled by Korea Bank has been marked up 8.2 percent from that of the previous year, showing the highest increase rate since the 9.4 percent increase in May 2001.

By category, including the chemical petroleum goods such as Benzene (14.6 percent), the steel products such as heat wrought steel (27.3 percent) and bituminous coal (26.8 percent), and raw materials have greatly soared up in price.

In contrast, as the price of export has increased only 3.0 percent from that of the previous year, and has decreased 0.2 percent from the last month, it is expected that it may be continued, to the aggravation of the export companies’ ability to pay.

On the other hand, undergoing party and government negotiation on May 13, the Open Uri Party and Ministry of Commercial, Industry, and Energy (MOICE) have decided to give the benefaction of reducing seven percent of the entire taxation for the companies that have installed an energy reduction facility or utilized a highly efficient construction material.

In addition, the leading party and government have decided to organize the “National Energy Commission,” in order to deal with the energy problem as a nationwide agenda, and drive forward with the development of natural resources overseas.

Ki-Jeong Ko Joong-Hyun Park koh@donga.com sanjuck@donga.com