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Rise in gasoline charges impacts foreign markets

By Wang Lan (China Daily)
Updated: 2008-06-21 09:23

The increase in the price of gasoline, diesel and jet fuel announced by the government on Thursday night had an immediate impact on international oil markets, marked by a sharp decline in crude futures prices which fell from as high as $140 a barrel several days ago to $131.

Analysts said that the latest Chinese oil price adjustment was widely seen by international traders as a factor in the short term for a dampening in demands.

On the New York Mercantile Exchange, the most actively traded crude oil futures contract for delivery in August dropped more than 3.3 percent on Thursday to close at $132.6 per barrel. The same contract price went as low as $131.75 during Friday's electronic trading.

"With crude oil prices near all time highs, and China being the world's second largest consumer of oil, the markets expect the price increase to dampen domestic demand and moderate international prices," said Jing Ulrich, chairman of JPMorgan China Equities, in a written reply.

But economists expected the price rebound on international energy markets to be short-lived. They predicted that China's oil price increase would, in the longer term, boost refined oil production and increase crude oil imports.

"Real demand destruction in China is (expected to be) marginal," said Jerry Lou, an economist at Morgan Stanley Asia Limited, in Friday's report.

"Whether domestic demand cools, or the price increase simply serves to bring more refining capacity online to satisfy China's voracious appetite, remains to be seen," added Jing Ulrich of JPMorgan.

Economists said the price adjustment would in the longer term give refineries stronger incentives to import more crude oil and produce more refined oil products to satisfy the domestic demand which was previously not being fully met.