Oil rebounds as China sharply hikes energy prices
Saturday, 21 June 2008
LONDON, June 20 (Agencies): Oil rose by almost $3 a barrel Friday on a view now gaining ground that a surprise fuel price increase by China may actually boost rather than curtail demand for fuel in the world's second-largest oil consumer.
China sharply raised domestic energy prices across the board Friday, as authorities shifted policy in the face of complaints that price controls were causing turmoil on global oil markets.
The move immediately sent oil prices tumbling, in a sign of China's growing impact in the global economy. But analysts said it was far from clear what the long-term effect would be from the surprise move announced late Thursday.
The move came just two days before an international "oil summit" in Saudi Arabia called to discuss the soaring cost of oil, which has wracked stock markets and, in some places, led to protests that have unnerved governments.
China hiked retail petrol and diesel prices as much as 18 per cent as the government moved to close the gap between state-set domestic prices and the soaring world oil market. Electricity costs were also raised.
Oil plunged nearly $5 in the previous session.
US July crude, which expires Friday, rose $2.68 to $134.61 a barrel by 8:14 a.m. EDT, after slipping earlier in the day. London Brent was $2.76 up at $134.76.
Chinese fuel pumps have faced long queues and rationing as refiners cut back on production to limit hefty losses made by selling discounted fuel.
"We do not think that a country where consumers are used to waiting 3 hours for automotive fuel in many cases, will see significant negative demand elasticity from a simple 20 percent price increase," said Citi analyst James Neale. Societe Generale analyst Mike Wittner added: "We think, if anything, the Chinese price increase would tend to increase consumption and not decrease it."
Demand from China, India and the Middle East has been cited as a factor behind oil's almost sevenfold surge from $20 six years ago to a record high of nearly $140 a barrel this week.
High fuel costs have dented demand in other consumers, such as the United States and Britain.
China sharply raised domestic energy prices across the board Friday, as authorities shifted policy in the face of complaints that price controls were causing turmoil on global oil markets.
The move immediately sent oil prices tumbling, in a sign of China's growing impact in the global economy. But analysts said it was far from clear what the long-term effect would be from the surprise move announced late Thursday.
The move came just two days before an international "oil summit" in Saudi Arabia called to discuss the soaring cost of oil, which has wracked stock markets and, in some places, led to protests that have unnerved governments.
China hiked retail petrol and diesel prices as much as 18 per cent as the government moved to close the gap between state-set domestic prices and the soaring world oil market. Electricity costs were also raised.
Oil plunged nearly $5 in the previous session.
US July crude, which expires Friday, rose $2.68 to $134.61 a barrel by 8:14 a.m. EDT, after slipping earlier in the day. London Brent was $2.76 up at $134.76.
Chinese fuel pumps have faced long queues and rationing as refiners cut back on production to limit hefty losses made by selling discounted fuel.
"We do not think that a country where consumers are used to waiting 3 hours for automotive fuel in many cases, will see significant negative demand elasticity from a simple 20 percent price increase," said Citi analyst James Neale. Societe Generale analyst Mike Wittner added: "We think, if anything, the Chinese price increase would tend to increase consumption and not decrease it."
Demand from China, India and the Middle East has been cited as a factor behind oil's almost sevenfold surge from $20 six years ago to a record high of nearly $140 a barrel this week.
High fuel costs have dented demand in other consumers, such as the United States and Britain.