Rising Fuel Prices in China

A round-up of fuel price related articles. This is an important issue - China is investing heavily in Africa to secure oil stocks in the future. This is a problem that may persist for some time.

This statistic shows how quickly things can turn around with this trade switch indicating how much China has grown since 1993.

China is the second-largest crude oil consumer after the US and although it was a net exporter as recently as 1993 it now relies on imports for nearly 50 per cent of its crude supply.

This quote shows clearly the problems that can occur when strict government controls are in place. Something that Taiwan and many other East Asian countries are also experiencing.

The current shortages, particularly of diesel, result from a combination of high global oil prices and strict government controls, causing huge losses for Chinese refiners that must pay more for oil but cannot raise prices at the pump.

With the Olympic games around the corner there is sure to be a lot more column and blogger inches devoted to this subject.

Beijing raises pump prices as shortages bite [FT]

Faced with worsening fuel shortages across the country Beijing raised petrol, diesel and jet fuel prices at the pump by almost 10 per cent on Wednesday, in an effort to boost domestic supplies and exorcise the spectre of social unrest.

The policy reversal came as shortages spread to the capital, which is usually immune from the country’s periodic supply crunches.

But the government is unwilling to allow prices to rise too much because of a morbid fear of spiralling inflation, which has a history of toppling governments in China and is currently running at a 10-year high, above 6 per cent.

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Analysts say the increasingly independent state oil giants are playing a high-stakes bluffing game with the government in which they chase profits by exporting refined products instead of supplying the domestic market.

This has created shortages that force the government to choose between doing nothing and risking incidents like the one in Henan, or raising prices at the risk of triggering a backlash among ordinary citizens that could escalate like the recent protests in Burma, which started as a reaction against a fuel price increase.

“The government will be under enormous pressure to keep fuel prices low at least until after the Olympics next year,” says Gordon Kwan, head of China energy research at CLSA in Hong Kong. “They can’t have sad faces, let alone street riots or fuel shortages, in Beijing with Bush and Putin here to watch the games.”

China hikes fuel prices as long lines form at gas pumps and shortages disrupt trucking [China Post]

BEIJING, China -- China raised gasoline and diesel prices Thursday by about 10 percent to curb demand amid shortages that have caused long lines at filling staions and disrupted trucking in key export areas.

and finally, a China bloggers view of events from 30th and 31st October a good 2 or 3 days before the FT got hold of this story.

Fuel shortage spreads [China Financial Markets]

Hidden inflation? [China Financial Markets]

Certain regions in China are experiencing shortages in diesel fuel. I heard first from my students and then in the press that in parts of coastal China gas stations are rationing the amount of diesel they sell. This often happens when price controls clash with underlying inflation – instead of showing up in higher prices, inflation shows up as shortages.

I believe that the last time gasoline prices were set by the authorities, oil was trading around $60 a barrel. Unless oil prices drop substantially in the near term I would expect that there might be pressure on the government to let gasoline prices rise, thereby showing up in the non-food component of CPI inflation. Perhaps more worrying, to see inflation spread from food to transportation may lead to a rise in inflationary expectations. All eyes will be on October inflation numbers, which I believe should be released in less than two weeks.

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