[Letters] Will we see $100 a barrel?

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[Letters] Will we see $100 a barrel?

The price of oil is increasing every day, with Dubai crude oil, which makes up the largest portion of Korea’s oil imports, nearly at 90 dollars per barrel.

Predicting oil prices is just as challenging as predicting the stock market.

For example, when oil skyrocketed to 100 dollars per barrel in May 2008, U.S. investment bank Goldman Sachs predicted that the price would soar to 200 dollars a barrel by the end of the year.

However, as if making fun of the prediction, oil dropped to about 30 dollars per barrel in December.

Since the price of oil makes a huge difference in Russia’s state finance, Moscow makes predictions for the following year, but the predictions are rarely right.

Although it is very difficult to make an accurate prediction, I would like to present my outlook for oil price movement based on present conditions. While the price of oil may rise by a small margin, it is not likely to skyrocket to the 140-dollar level it hit in July 2008. There are two grounds for this prediction.

The first is supply of petroleum. The most important factor deciding the price of oil is the supply and demand of petroleum. Especially because surplus production capacity among the Organization of Petroleum Exporting Countries (OPEC) has great influence on the price of oil.

When the price increases rapidly, OPEC promptly produces additional oil and contributes to a stable oil price. At present, the supply of petroleum is very smooth.

According to data provided by the U.S. Energy Information Administration, the surplus production capacity of OPEC is 4.58 million barrels a day.

The volume is far more than the surplus production capacity of 1.36 million barrels per day when Dubai crude was traded higher than 90 dollars for the first time in January 2008.

The second factor is the global economic situation.

The price of oil dropped to about 30 dollars per barrel in December 2008, only to bounce back to 70 dollars six months later.

Saudi Arabia’s Minister of Petroleum and Mineral Resources Ali Al-Naimi mentioned that the international economy can afford the price level of 75 to 80 dollars per barrel.

If you apply his theory to the present circumstances, the possibility oil soaring above 140 dollars per barrel seems slim.

The global economy is recovering at a rate faster than expected, as many countries promote economic-growth policies.

Yet, the economic recovery is still not enough to handle the high price of 140 dollars per barrel.

Based on similar reasoning, Saudi Arabia recently set the reasonable upper range for petroleum at 90 dollars per barrel.

Lee Yu-sin, a professor of political science and diplomacy at Yeungnam University.
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