NEW YORK (Reuters) - China, the world’s second largest oil consumer, will increase retail gasoline and diesel prices by 1,000 yuan ($145.50) per tonne from Friday, according to industry sources.
Fuel subsidies have helped propel China’s demand and supported a six year rally in crude oil rally that has sent prices up nearly seven-fold.
Oil prices tumbled $3 following the news.
“Even with the $18.60 (per barrel) increase in price (Chinese fuel prices) are still well below the global market and the subsidy amounts to something on the order of $56 per barrel.”
”This increase amounts to approximately $18.60 per barrel and will raise fuel costs from an approximate $60 per barrel to
“At the margin it may help to support demand growth for diesel and gasoline as it alleviates shortages. Hence it’s potentially mildly bullish for crude oil and/or product imports. I suppose ... perhaps somewhat counter-intuitively, it’s not bearish.”
“It’s a pretty modest increase. If anything, it will help to reduce shortages in the domestic market.”
DAVID COX, MANAGING DIRECTOR OF POYRY CONSULTING IN OXFORD, UK
“It’s already been happening (in India) and this is just a continuation of what we would expect. You can only subsidies to a certain extent, around the margin, but you can’t subsidize oil prices if they are double what your prices are based on. It is too expensive for the treasury.”
“This is very significant, a watershed move which suggests the Chinese government is prepared to risk unpopularity to curb the growth in domestic fuel demand. We’ve already seen other Asian economies cut subsidies and the one big hold out, until now, was China.”
“The news China will raise fuel prices caused crude prices to retreat. The assumption is demand is going to be hit pretty significantly.”
“Back of the envelope calculation shows its about 47 cents a gallon. It looks like it could definitely do something in the medium term, before the Olympics, maybe not.”
“If you think price is elastic at all, over the long term a 20 percent rise in price will be meaningful. China is going along with many Asian countries to roll back subsidies.”
“It comes as a bit of a surprise. They’ve been saying even recently they had no plans to raise prices.... (China) has been the center of demand growth so a price rise there should be meaningful.”
“Nobody thought China would raise prices on gasoline and diesel this much. This is huge. Demand should fall.”
“Certainly if the Chinese raise their prices, cut subsidies and reduce some of the insulation around their consumers, then you would expect that would impact their demand growth. As the developing countries of the world are underpinning the demand side of this market, this could prove bearish for commodities.”
“This is something we’ve been wanting to see for a long time. Anything that gets Chinese prices closer to real world prices is great news for the American consumer because China will feel the pain we’re feeling and maybe cut back on their demand as we cut back on our own. Energy prices are a global problem and until everyone feels it equally, demand will continue to outpace supply.”