Blessing or Disaster?
The international oil price has fallen below US$30 per barrel, signaling a highly negative impact on the global economy. According to the Korea National Oil Corporation, the average of the Dubai, West Texas Intermediate (WTI) and Brent crude oil prices recently hit a 10-year low. Specifically, the average price of the first one was US$50.69 per barrel last year while it had been as high as US$96.56 per barrel in 2014 and US$49.59 in 2005.
This trend is ongoing this year. The Dubai crude oil price was US$26.22 on January 15 and US$26.04, the lowest in 12 years and two months, on the previous day. The WTI price ended up at US$29.42 on January 15 as well while the price of the other one fell by US$1.94 from the previous day to close at US$28.94, falling short of US$30 per barrel for the first time since February 2004.
This trend is predicted to significantly affect the Korean economy. According to the Korea Development Institute’s report released early last year, a decline in oil price based on both supply and demand factors can have a limited positive impact on Korea’s economic growth rate, national income and the like although that based solely on supply-side factors is likely to be a boon to the national economy. The institute explained that a decline attributable to both factors will drag down the global economic growth rate by 0.1 percentage point, and then an increase in Korea’s GDP and private consumption will be limited to 0.09 and 0.05 percentage points, respectively.
It is definitely true that a low oil price is welcome news for countries importing 100% of the oil they use like Korea. However, this is not the case when oil-producing countries take a hit from the trend and economies around the world recover at a slower-than-expected pace. These days, financial concerns are on the rise with regard to oil-producing countries and negative outlooks are on the increase regarding Korea’s exports to such countries.
“A low oil price does tend to result in an increase in consumption based on a higher level of purchasing power but its positive effects are rather limited,” the LG Economic Research Institute explained, continuing, “The current trend is likely to keep affecting emerging economies while their demands are on the decline to leave a negative impact on Korean exporters.”