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Issue Report

Collection of full-length papers and in-depth analysis of economic and management issues.

Direction of 2013 Global Oil Prices

Direction of 2013 Global Oil Prices

KIM Hwa-Nyeon

Dec. 6, 2012

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International oil prices rebounded in the second half of 2012, after spiking upward in the first quarter on geopolitical concerns over Iran's nuclear program and then swooning in the second quarter on worries over the eurozone crisis.

The continued global economic slowdown is ensuring that pressure on oil prices remains low on the real demand side. In particular, emerging economies, which had propped up the world economy since the global financial crisis began, are slowing their growth, leading to a slowdown in real demand (including oil demand). Accordingly, neither supply nor demand factors are driving oil price increases. As global liquidity increases as the eurozone crisis eases and more US' quantitative easing gets underway, speculative demand is increasing, while the US and EU's Iran sanctions are expanding geopolitical risks. External factors are thus driving oil prices higher.

The direction of 2013 international oil prices will have three salient factors: weakening demand due to the lackluster global economy; rising oil supplies thanks to higher OPEC and US production; and a persistent oversupply. Growing speculative demand fueled by abundant liquidity and increasing geopolitical risks in the Middle East (including in Iran) will the primary external factors.

In 2013, upward pressure on international oil prices due to external factors will continue to trump the downward pressure of plentiful suppl ies, and oil prices will maintain similar levels to those of 2012.

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