Thursday, Jun 19, 2008
China to lift fuel prices by 18%
FT.com: China to lift fuel prices by 18%
I thought it was due to speculation. Then it's demand. Then it's speculation again. Which is it? When it goes higher again is that now down to demand or speculation?
Posted by whiteknight @ 03:56 PM (598 views) Add Comment
11 Comments
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1. whiteknight said...
... time to make the game real for some people.
2. notaneconomicsguru said...
Final sentence >> "Oil prices fell $3 a barrel on Thursday on the news because demand from China has been one of the main factors driving oil prices to a record near $140."
Note the use of "one of".
In reality I think its down to both a long term gradual increase in demand which has steadily pushed up prices over a long period and recent short term inflationary US monetry policy. I have no data but my instinct is that most of the price increases in recent months have come from a combination of dollar weakness and speculative demand and both are driven by inflationary US monetary policy.
3. whiteknight said...
noted.
I thought for a second there that because China had raised prices 18% and because oil prices came off a couple of dollars (which has occurred many times in the past few weeks . Up a bit down a bit .. mainly up) that somebody was just spouting a reason for the price move after the fact.
Most seem to be good at spouting reasons to fit what has just occurred.
4. Sharpe said...
It is fairly clear journalists are willing to just write junk that sounds plausible.
the real reason, that money is being printed at 20% a year and has to go somewhere in the form of price increases is so far off the agenda it is considered radical. now that houses are falling and central bank action to sell gold, it is expected that food and fuel should sky rocket.
5. The Mcglashan said...
My understanding is that China has not been subsidising fuel prices directly, but rather capping them at the pump. As a result, large (state-owned) refineries have been running at a loss and minimising production runs to limit those losses. Private enterprise small scale "tea-pot" refiners have been shutting their doors. This has lead to fuel shortages in China and stoked pent-up demand. By lifting the cap, China will allow the large refineries to run at a profit (or, at least, less of a loss), INCREASE production runs to exploit the pent-up demand and the "tea-pots" will come back on-line. This move by China may well increase demand for crude oil and force the wellhead price further up.
6. notaneconomicsguru said...
I think this shows the speculative element at work. China announces they'll raise their retail pump prices dramatically and suddenly the speculators see overall demand falling and then the price goes down. Its possible that the Chinese will reduce their forecast demand and therefore their actual purchases of crude oil, but given the production timescales which must be more than a few days, I would have thought that would already be in the system and therefore refelected in the price. So I think this must be demand speculation at work.
7. Rental John said...
Higher fuel cost in China, will be paid for by importers of Chinese goods in higher prices as price increases are passed on.....it's a lose lose situation.
8. Dontpanic said...
China has been providing oil subsidies now for several years,these were promised to subsidize disadvantaged communities and public service sectors. This surprise increase might well be down to the inflationary pressures that China faces; and yes, has undoubtedly resulted in being "one of" the reasons for todays drop of $3/barrel.
9. drewster said...
China subsidises petrol for ordinary people. But with the price of oil so high, they can no longer afford the subsidy, hence having to raise the retail price. But 18% isn't a big deal - the price in the UK has gone up by more than that in the last year alone, with little (noticeable) effect on demand.
10. The Mcglashan said...
My understanding is that China does not directly subsidise fuel prices, rather it caps the at the point of retail. This has had the effect of making state-owned large refiners run at a loss, and minimise production runs to mitigate that loss. Private enterprise small-scale "tea-pot" refiners have gone out of business. This has led to fuel shortages in China and pent-up demand. By relieving the cap on fuel prices, China will allow refineries to operate at a profit (or, at least, a smaller loss), increase production runs and satisfy pent-up demand. The "tea-pots" will also come back on-line. Overall demand for crude will INCREASE because of this news.
11. Jonb said...
Drewster,
Petrol sales are down 20% on last year, following many years of steady increases.
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/11/npetrol111.xml
That is a pretty noticeable effect on demand