Why did China raise fuel prices to record levels?

Posted Jul 1st 2009 9:00AM by Connie Madon
Filed under: International Markets, China, Commodities, Oil

Why did China raise its gasoline and diesel prices? Beijing has a pricing policy that uses a 22-day moving average of crude oil. With the price of crude oil trading at around $71 per barrel, China felt it necessary to raise the price of gasoline and diesel fuel 9% and 10%, respectively. This will raise the price of a gallon of gasoline to $3.00 per gallon, compared with the U.S. price of $2.66 a week ago, according to Reuters news service.

With economies around the world gaining ground this quarter, it follows that demand for crude oil is also increasing. So far we've seen a doubling of oil prices since last February. The main concern is, given the pace of recovery, is there a point where demand for crude oil and gasoline will taper off. If so, we may be looking at an intermediate top in oil prices. However, if world economies continue to improve, crude oil could move to $75 to $80 per barrel.

In other words, looking back to last summer when gasoline prices were above $4 per gallon, consumers were cutting back on their purchases, Will we see the same dynamic again this year? We are reminded that since last year we've seen a sharp contraction in world economies, which may signal a saturation point in oil demand.

Do you believe that gasoline prices will go up this summer?

Tags: China, fuel prices, gasoline, inthenews, oil demand, oil prices

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Reader Comments (Page 1 of 1)

7-01-2009 @ 2:49PM

draw984 said...

Nothing notable what China is doing with gasoline and diesel prices; they are adopting the same tactic oil companies around the world are doing : basing gasoline/diesel prices on "replacement" costs, not actual costs. China is just doing it faster.