Cheap oil only a temporary fix
Written by Writer on Monday, November 10th, 2008
Cheap oil only a temporary fix
Cheap oil is providing some relief to Korea’s embattled economy, offsetting the impact of a global economic recession on its trade account balance.
But oil prices are unlikely to stay low for long, experts said yesterday.
International oil prices in New York dropped to $61.04 a barrel last week since reaching a record $147.27 on July 11, on concern that a downturn in economic growth may cut global fuel demand. Dubai oil, Korea’s benchmark, closed the week at $53.81 per barrel, its lowest since Jan. 31, 2007.
The decline should help Korea, struggling with slowing overseas sales of cars, ships and electronic appliances which have buttressed the country’s decade-long economic expansion.
Oil accounts for about 20 percent of the country’s total imports. The country buys 97 percent of the fuel it needs from overseas.
In October, lower oil prices helped the country post its first monthly trade surplus - $1.2 billion - since May. With that, Korea has accumulated a trade deficit of $13.5 billion so far, compared to a $13.6 billion surplus for the same period last year.
Exports rose 10 percent year-on-year to $37.89 billion in October, less than half the 22.7 percent growth rate posted during the first nine months of this year. Imports amounted to $36.7 billion, up 12 percent.
However, oil prices are unlikely to stay this low for long, experts say.
“The recent price drops are excessive, mostly driven by panicky market reactions to the global economic situation. It is difficult to forecast how the prices will move in the short term, but I don’t expect the prices to stay this low for long,” Goo Ja-kwon, an official at Korea National Oil Corp.
Korea imported 1.4 percent less crude oil in October as the global credit crisis sent shockwaves through Asia’s fourth-biggest economy and a weakened currency inflated the cost of buying fuel.
Imports fell to 70.4 million barrels during last month, from 71.4 million a year earlier, the Ministry of Knowledge Economy said. The country’s crude oil import bill for the month rose 26.3 percent from last October, to $6.9 billion.
By Lee Sun-young
(milaya@heraldm.com)
The Korea Herald
2008.11.10
