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Pre-Democracy Movement in the Middle East: Oil Price Outlook and Implications for Korean Industries
2011-03-11LEE, In-Hyuk
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요약
With deepening crisis in Libya and potential spillover into a wider region, the world is most likely to see the price of Dubai crude oil soaring up to $130 per barrel.
● If the unrest in Libya settles down earlier than expected, the price may recover a $90 level as it was in 2010 before the pro-democracy movement, but the chances are still low.
● At this stage, the most likely scenario is that the oil price will rise as high as $130, owing to prolonged armed conflicts in Libya and weakening sentiment over potential supply disruption in neighbouring countries of Algeria and Oman.
● It is based on the assumption that OPEC can fill supply gap in case of Libya’s production suspension, but it should take time for the group to respond to the whole demand on its own, and that the prices may elevate further as much as they have recently done, spurred by emerging geopolitical risks.
Oil prices may surge to $170, although the chances are slim, in case when small oil-producing countries actually suspend production.
● If the pro-democracy movement spreads further into Algeria, Oman, Yemen, and Bahrain, triggering production suspension there, a total of 2.12 million barrels of oil per day needs to be secured from other sources, while OPEC spare capacity will plunge to 2.43 million barrels a day.
● Production suspension in Algeria and Oman can further push the oil price already expected to rise to $130 amid a prolonged unrest in Libya to as high as $150 to 170, just with supply contraction and low spare capacity only.
● In case when concerns over potential supply disruption by major producers such as Iran and Saudi Arabia aggravate, the price may skyrocket to $200 per barrel, which is extremely unlikely though.
A protracted unrest in Libya and sustained upward trend in oil prices may deal an especially hard blow to the construction business as overseas contracts dwindle, and other industries of chemical, plastic, non-metal, and transport which will also face a heavier burden of rising costs.
● Korean construction companies are likely to remain less affected in the short-term, given their concentration on Saudi Arabia and the UAE, but Daewoo E&C and Hyundai E&C are exposed to relatively higher risks, as they have been doing much business in Libya.
● A Dubai crude oil price rising up to $150 is forecast to cause average operating profit ratios of domestic petro-chemical and plastic industries to hit 5.5% and 5.2% respectively, a record-low level in a decade.
● Accordingly, maritime, air, and other transport businesses may face a stronger downward pressure on their profitability, affected by sluggish travel demand and rising prices of fuel oil which accounts for 20 to 30% of their cost.
● on the other hand, the shipbuilding industry may benefit from the high oil price, owing to growing demand for eco-friendly vessels or floating plants.
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