China has unexpectedly raised prices for fuel, by as much as 18 percent, in a move that could slow down the country`s surging energy consumption. Meantime, the news from China caused global oil prices to drop.
There were still some lines at gas stations, but they were not as long as they were Thursday night, after the Chinese government announced a fuel price increase of up to 18 percent, to go into effect Friday.
Robert Broadfoot, of the Hong Kong-based Political and Economic Risk Consultancy, calls Beijing`s move a good start, and says heavily-subsidized oil prices in China have led to distortions in Chinese demand for oil.
"And when you get an economy where people are becoming wealthier, and yet they`re not having to pay market prices for critical commodities like oil, it means that their demand for oil is higher than it would be than if they were paying higher prices," he said.
He says the increased Chinese demand has put what he describes as "significant upward pressure" on global oil prices. By the same token, he says it is interesting to see that the world oil market is also affected by China`s decisions.
"Global energy policy is no longer just set by the United States` demand and Middle East supply," he said. "China`s such a new consumer, that when it makes a decision, like it did on Thursday, to raise prices by 18 percent, global oil prices fall by four percent. That wouldn`t happen if England made a similar announcement."
Broadfoot says he did not expect the Chinese government`s move now because such a move could cause social unrest before the Olympics.
He points to examples of groups around the world, whose anger over higher fuel prices brought them out onto the streets.
"Then they`ll say, gee, we can`t afford to eat, and that`s when you start getting strikes," said Broadfoot. "Now, you`ve had a trucker strike in Korea on Monday. You`re having trucking strikes in Europe right now. So, it`s not just a China thing. When you get fuel price increases, you`re going to get certain groups that are going to feel the pain."
This point is illustrated by one Beijing taxi driver, who says overnight, his gas prices went up 16 percent, or 12 cents a liter, to 90 cents per liter. He says higher gas prices will mean lower profits for him and his colleagues.
He says the government has promised to provide subsidies to affected groups, like taxi drivers. He says if Beijing does not provide some kind of help, the fuel price rises will have a bigger impact.