Red Light on Trade Surplus

Article excerpt

Soaring crude prices on international markets are expected to have a negative effect on domestic inflation, production and the trade surplus.

Crude prices hit the $28 per barrel mark for West Texas intermediate last weekend shortly after OPEC decided to maintain its current output cut after March. Middle East crude, which is the main source of Korean imports, is generally $2-3 cheaper than West Texas intermediate.

If current crude prices persist, import prices are expected to be in the range of $23 to $24 a barrel this year, 40 percent higher than the average $17 last year.

According to the Commerce, Industry and Energy Ministry, a one dollar hike in the price of a barrel creates $1.04 billion in trade deficits due to import growth and export decline.

As a result, given current crude prices, the trade surplus of $6-7 billion will decrease this year, indicating that Korea will hardly reach its trade surplus goal of $15 billion.

Inflationary pressure is also expected to mount due to high crude prices. If crude prices rise 25 percent, it will push up price of oil products by 16.69 percent, electricity costs 2.4 percent, city gas prices 1.62 percent and heating by 2.65 percentage points.

An increasing crude price will also push up overall service charges such as transportation and communications by 8.43 percent. …