Price Hikes Put China’s Oil Demand Recovery At Risk

Analysts say June will be an important month for testing the boundaries of Chinese fuel demand elasticity, after Beijing followed a 6 to 7% rise in gasoline and diesel prices on June 1 with an 8 to 10% hike four weeks later. Gasoline and diesel prices in some regions of China are now near heights reached in summer 2008, when crude oil futures peaked above $147 a barrel. “On a psychological level I think we are beginning to arrive at the point now where consumers will start counting their fuel costs and maybe rein back spending,” said Tom Grieder, Asia-Pacific energy analyst for consultancy IHS Global Insight. Paul Ting, president of research firm Paul Ting Energy Vision LLC, said there were signs in the market that Chinese oil demand is being hit. “The most important is the fact that there were already price discounts taking place in China in June,” Ting said, citing evidence from independent fuel retailers and others. “Any time you have to give ‘trinkets’ such as eggs and soft drinks away to sell fuel suggest a very competitive market,” he said. (July 1, 2009)