Experts Puzzled Over Surging Oil Prices

International oil prices have been continuously setting new highs.

Experts at home and abroad predicted last month that international oil prices would stabilize beginning April. However, their forecast proved wrong.

The Korea National Oil Corporation said yesterday that the spot price of Dubai crude increased $1.50 from a day ago to reach $105.16 per barrel on Wednesday, setting a new high for the second consecutive day.

The April price of Dubai crude oil, which began soaring earlier this month, was $99.88 per barrel on average until Tuesday. Given that, its monthly average price is expected to reach $100 per barrel soon. The Dubai price has almost doubled in 15 months since January 2007 when its monthly average stayed at $51.75 per barrel.

For the day, the future prices of West Texas Intermediate and Brent crude also increased $1.14 and $1.08 from a day ago to reach $114.93 and $112.66 per barrel, respectively, setting new highs for three straight days.

Until a few weeks ago, local economic think tanks explained that oil prices had already topped out and they would stabilize at a lower level. They based their analysis on the fact that the cold winter had already passed and the demand for oil would decrease for seasonal reasons.

Facing skyrocketing international oil prices in April, however, oil experts seem to be perplexed.

Energy experts say they cannot understand the recent developments in oil prices just by applying market principles.

It means that even experts have difficulties predicting oil prices that have emerged as derivatives in the financial market, just as it is hard to predict stock prices. What makes it harder to predict oil prices is the fact that international speculative funds have flowed into the oil market with the weakening dollar.

Since the U.S. Federal Reserve Board began interest rate cuts in September last year, the dollar has depreciated by 15 percent against the euro.

With the surging oil prices, the Council on International Oil Price, a gathering of local organizations specializing in oil prices, such as the Korea National Oil Corporation and the Korea Energy Economics Institute, held a conference to adjust their prediction for oil prices Thursday afternoon.

At the conference, the Korea National Oil Corporation said that it would increase its forecast for the annual average oil price by $17.5 from $77.5 to $95 per barrel, while the Korea Energy Economics Institute said it would raise its forecast by $14 dollars from $72 to $86 per barrel.

changkim@donga.com