In February 2022, the war began when Russia invaded Ukraine. The war has created numerous casualties and refugees. In addition, the war has caused significant economic losses around the world, one of the major economic shocks being rising oil prices. As Russian crude oil was banned due to sanctions against Russia, the supply of oil and LNG has decreased significantly. Furthermore, oil demands have increased from expectations that COVID-19 will become endemic. As a result, oil prices surpassed $100 a barrel for the first time since 2014.
The graph shows the price change of West Texas Intermediate (WTI) from January 2022 to April 2022. Oil prices rose sharply as the war began in early March. After that, the price fluctuations were considerable. The global economy faced a crisis due to this confusion.
In general, rising oil prices damage all industries. Son Sang-bum, professor of International Economics and Business, noted that the primary shock would be the energy-related industries. Korea is heavily dependent on imports of energy sources, including crude oil, so fluctuations severely hit oil prices. Refiners such as SK Innovation and GS Caltex generate inventory valuation gains as the value of pre-purchase increases when oil prices begin to rise. However, prolonged high oil prices will seriously impact profits as demand shrinks, and margins decrease. The negative impact on Korea will continue as crude oil import prices have risen due to the current rise in the exchange rate. Professor Son predicted that the international environment of high oil prices and high exchange rates will lead to a rise in cost. Thus, product prices will affect the market for at least two years in line with inflation.
Oil prices have recently fallen as the United States released strategic petroleum reserves. However, considering that it is necessary to supplement the inventory of strategic reserves, it is not a long-term solution. Increasing the supply of crude oil or reducing demand is the only long-term solution. However, it is impossible to realize because there is no possibility that the war will end. Therefore, oil prices are likely to continue rising and economic confusion will not disappear.
