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Business News/ Home-page / Oil higher in Asia as analysts mull China fuel price hike
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Oil higher in Asia as analysts mull China fuel price hike

Oil higher in Asia as analysts mull China fuel price hike

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Singapore: Oil prices rose in Asian trade Friday after sliding following China’s surprise decision to hike fuel prices, but analysts differed on the move’s longer term impact.

The benchmark oil futures contract, New York’s light sweet crude for July delivery, was 78 cents higher at $132.71 a barrel. It had tumbled $4.75 to close at 131.93 in US trade Thursday following China’s announcement.

Brent North Sea crude for August delivery rose $1.12 to $133.12 following a drop of $4.44 to settle at $132 in London on Thursday.

Both the Brent and New York contracts had fallen in early Asian trade.

China became the latest Asian nation to curb energy subsidies by hiking retail petrol and diesel prices as much as 18%, moving to close the gap between state-set domestic prices and the soaring world oil market.

Analysts said Friday the move by the world’s second biggest oil consumer was important, but differed on its longer term impact on oil prices, which hit nearly $140 this month from lows under $11 in the 1990s.

“I think it’s very significant," said Dave Ernsberger, Asia director of global energy information provider Platts. “It is going to eat into demand. I’m pretty sure of that."

He had called China’s subsidies “the big gorilla in the room" ahead of its price hike announcement Thursday. Experts have said China’s booming economy has up to now been a key driver of the world’s growing appetite for oil.

But the fuel price hike “may temper growth in fuel demand in China, helping moderate demand-based pressure on oil prices," David Moore, a commodity strategist at the Commonwealth Bank of Australia in Sydney, said in a report.

Fuel subsidy cuts elsewhere in Asia are already said to be hurting regional energy demand. Malaysia has hiked fuel prices by 41 percent and Indonesia by around 29%, while Taiwan and India have also raised energy costs.

The longer-term impact of China’s move on world oil prices would not be clear until later in the year, when numbers about demand are released for the market to digest, Ernsberger said.

“It’s possible we won’t see a big impact on the price until September, October," he said.

Victor Shum, an analyst at Purvin and Gertz energy consultancy in Singapore, said the impact from decreased demand for oil in China was likely to be small as higher prices would stimulate production.

“The negative impact in demand growth in China may be more than compensated by increased supply," Shum said.

Jim Ritterbusch, president of US trading advisory firm Ritterbusch and Associates, foresees demand deterioration, but not destruction, “in a country in which automobile ownership is increasing at a rapid pace across the middle class."

Global finance officials fear soaring crude costs pose a threat to world economic growth.

Thursday’s oil price fall of nearly five dollars also came as Saudi Arabia, the biggest producer in the Organisation of the Petroleum Exporting Countries (Opec) cartel, said it planned to increase output by 200,000 barrels per day.

Shum said the Saudi announcement would not have a major impact because the increase was “not that significant compared to the total oil demand of 86 million barrels a day."

Concerns about lost Nigerian oil output might outweigh the Saudi increase due to the better grade of the African nation’s crude, Shum said.

Anglo-Dutch oil giant Shell said it had shut down a Nigerian offshore oilfield after an attack by militants. The field has a capacity of 200,000 barrels per day.

Hugo Chavez, president of Opec member Venezuela, said prices should be around 100 dollars per barrel but “could soon reach $200" given political tension, threats against oil producer Iran and a weak dollar.

World leaders are preparing for an unusual meeting between producers and consumer nations Sunday in Jeddah to discuss soaring prices.

— Dow Jones Newswires contributed to this story

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Published: 20 Jun 2008, 04:03 PM IST
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