"International Oil Prices May Reach $185: Increased Burden on Korean Companies with High Dependence"

WTI Hits Intraday Record High of $116... Soaring Production Costs in Chemicals and Steel Industries

[Asia Economy Reporter Jeong Dong-hoon] As international oil prices soar due to Russia's invasion of Ukraine, the cost burden on Korean companies, which have the highest oil dependency among OECD member countries, is increasingly intensifying. In particular, concerns are growing as forecasts suggest prices could rise from the record high of $116?147 per barrel during the 2008 financial crisis to $150?185 per barrel.

On the 3rd (local time), U.S. bank JPMorgan Chase projected that if disruptions in Russian oil supply continue, Brent crude prices could rise to $185 per barrel. This level far exceeds the record high of $147 per barrel recorded during the 2008 global financial crisis. JPMorgan analyzed that currently 66% of Russian crude oil is struggling to find buyers and expressed concerns that it could become subject to further sanctions, making sales in the market difficult.

Domestic government research institutes also foresee a significant rise in international oil prices. The Korea Energy Economics Institute predicted that if Russian energy is included in Western sanctions, international oil prices could rise to $150 per barrel. Depending on the level of economic sanctions and Russia's response, prices could soar to $150 per barrel.

In fact, international oil prices are rising sharply. Dubai crude, which was around $76.9 per barrel at the beginning of this year, surged to $95.8 immediately after Russia's invasion of Ukraine. On the day before the announcement of Russia's expulsion from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) payment network, prices soared to $110.1. On the same day, West Texas Intermediate (WTI) crude for April delivery on the New York Mercantile Exchange (NYMEX) briefly surged to $116.57 per barrel, marking the highest price since September 22, 2008.

Accordingly, domestic companies that import large quantities of crude oil for use as energy sources and raw materials are in an emergency situation. According to the Hyundai Research Institute, production costs have surged in key domestic industries such as refining, steel, and chemicals. When oil prices reach $100 per barrel, the cost increase rate in the refining industry reached 23.5%, while steel (5.26%) and chemicals (4.82%) also saw significant increases.

A steel industry official said, "Blast furnaces that melt iron require a lot of coal or electric energy, and rising oil prices could lead to higher electricity rates, which is a burden," adding, "If oil and energy prices do not stabilize, it could greatly affect profits this year." A petrochemical industry official also predicted, "With rising international oil prices, naphtha (a basic raw material for various chemical products such as plastics and textiles) prices are also increasing, and if demand does not support this, profitability will deteriorate."

To minimize the impact on domestic energy supply and demand and the domestic economy, there are calls for policies such as reducing fuel taxes, extending the suspension of tariff quotas, increasing the operating rate of coal power plants, and expanding the scope of electricity rate hikes. Professor Lee Jeong-hee of the Department of Economics at Chung-Ang University stated, "As economic sanctions against Russia spread comprehensively, energy and raw material supply chains are showing instability," and added, "If costs increase and inflationary pressures rise, both households and companies are likely to reduce spending."

This content was produced with the assistance of AI translation services.