Thursday, June 19, 2008
When a nation manipulates a market, like energy it gives them an advantage over other nations, or imposes mandates that increase prices domestically, it harms their economy.Less than 24 hours later, China caves in.
China will raise domestic gasoline and diesel prices by 17%-18% from midnight, the government said Thursday, as it responds to near-record crude oil futures and criticism of its fuel subsidies.China's stock market has fallen 50% since late last year; it may be that the engine that is the Olympic Games is about to run its course. Mark Perry has a great graph of construction in China, proxied by its cement output. This supply shock won't help. Along with India and Malaysia, higher net prices to consumers could signal a decrease in quantity demanded as it already has in the US, and a peak in oil prices. As Asia last time led oil prices down in the late 1990s, could that happen again?
The surprise move raises prices by 1,000 yuan ($145.30) per metric ton and will be the largest increase in over four years although local prices will still be below the international market.
In a statement, the government's National Development and Reform Commission said the decision was aimed at ensuring domestic supply, noting that refiners were suffering "heavy losses."
It's the first oil product price increase since Nov. 1 and comes at a time of widespread fuel shortages in China as filling stations run out of diesel to sell or ration purchases by truckers. China is also increasing jet kerosene and jet fuel prices and from July 1 is raising retail electricity prices.
UPDATE: See also this from Ironman.