Another ho hum as China increases gas and diesel prices
The other day, Saudi Arabia indicated it would pump more oil and probably sell it at reduced prices. The market ignored the news and oil prices barely moved at all. Today it’s China’s turn to be ignored, even as it announced an 18% increase in domestic gas and diesel prices. The market shrugged again. WSJ:
Light, sweet crude for July delivery recently traded $2.52, or 1.8%, lower at $134.16 on the New York Mercantile Exchange. Brent crude on the ICE futures exchange traded $2.52 lower at $133.92 a gallon.
China will increase fuel prices on Friday, according to a Chinese news service. While most of China’s neighbors have reduced subsidies in the last few weeks, China was seen as capable of weathering the recent upswing in energy costs without raising prices. Higher prices are seen reducing consumption, which would be especially worrisome in the giant Chinese market, traders said.
“This is enough to scare the market,” said Ray Carbone, president of Paramount Options. “This is not what people who are long want to hear.”
“This is enough to scare the market” — hardly; a 1.8% reduction in oil prices is scant evidence of the market being “scared.” (And, given recent history, the market will likely decide in coming days to be concerned about some other miscellaneous matter that will once again send prices to fresh records.) China is often touted as perhaps the main reason that oil prices are stratospheric. But now its demand growth will attenuate, even as more supply is brought onstream. Given events such as these, the “supply and demand” argument for the persistent $135 price of oil is getting a little tiresome as a complete explanation for the phenomenon. Perhaps something else is at work.