Korea blamed for rising Dubai Oil price

Middle Eastern crude oil prices have soared abnormally again, and Korea must pay tens of millions of dollars in additional burden for December's delivery. And there is a controversy brewing that Korea is responsible for the soaring prices.

Platt's, a global oil price survey firm, commented Oct. 19 that the price gap between Dubai Oil and North Sea Brent Oil, the quality of which is better than Dubai Oil, has narrowed to 59 cents per barrel for shipments in December.

Normally, Dubai Oil is US$1 to US$1.50 cheaper than Brent Oil, and the price gap for deliveries in October and November has further widened to US$2.50. However, the price of Brent Oil for delivery in December stood at US$31.05 per barrel, whereas that of Dubai Oil was as high at US$30.55.

Such a trend most seriously affects countries in Northeast Asia such as Korea and Japan, which rely nearly 70% of their oil imports on oil producers in the Middle East. The price increase means that Korea has to pay US$20 million additionally for December's delivery.

Platt's pointed out that the price increase for Middle Eastern oil is attributed to massive purchases of oil by the Korea National Oil Corp. The Middle Eastern oil prices are linked to the price of Dubai Oil.

In fact, the KNOC purchased 2 million barrels of Dubai Oil for delivery in December as part of its efforts to accumulate crude oil. The company also contracted to return 2 million barrels it lent to Caltex early this year in Dubai oil by December. The monthly output of Dubai Oil is limited to 7.5 million barrels, and 4 million barrels of new demand was created by the KNOC.

Domestic petroleum industry sources agree that the KNOC is responsible for the price hike because it wasn't flexible in introducing the Dubai Oil, thus resulting in the price hike.

"These are symptoms that foreign oil firms fabricated the price with the sudden demand by KNOC as an excuse," an official at a Korean refinery firm said. "But such a price hike wouldn't happen if the KNOC had warned them or had taken measures to postpone delivery of the projected orders."

In this connection, KNOC officials said that it is a vicious rumor spread by speculative traders and some refineries that would benefit from a decline in Dubai Oil prices, adding that the KNOC is not responsible for the soaring Dubai Oil prices triggered by the unrest in the Muddle East and decline in Brent Oil prices through release of strategically reserved oil by the United States.

mungchii@donga.com