For Chinese Consumers, Oil Prices Halted At $40 Per Barrel Will Not Cut Down The Fuel Prices

January 21
6:14 AM 2016

As crude oil price is still below $40 per barrel, there won't be any price adjustment for Chinese consumers. This is aimed at limiting the consumption and reducing pollution as well as protecting stock.

According to the National Development and Reform Commission as mentioned in Bloomberg, the fuel price for retail market, including gasoline, will remain the same given that crude oil is traded no less than $40 per barrel.

Normally, China makes adjustment on the retail fuel prices following the world's crude oil prices. This policy is not altered until now. However, the government of President Xi Jinping has delayed to lower the price eventhough the crude price has fallen down.

This action has caused some impacts to the consumers, refiners, and producers. An analyst with ICIS-China (a Shanghai-based commodities researcher), Li Li said by phone, "One thing is for sure, consumers are the biggest losers. "They are basically subsidizing oil companies."

Meanwhile the refiners are not far different, they will not gain the advantages of the raw material costs cut down eventhough there are no reduced prices on the retail fuel prices. This is because the extra profit will go to fund energy conservation, secure oil supply, diminish pollution, and encourage better fuel quality.

The effect of this decision also brings bad effects for the local oil producers. In a January 18 report Moody's Investors Service said, "Although a lower crude price largely benefits the Chinese economy, it would damage domestic oil producers' ability to maintain relatively stable domestic production."      

As stated in The Week, the International benchmark Brent crude price had fallen down below $30 per barrel last week. This is as a result of the world's crude oversupply. There is a 64 million barrels supply in Cushing, Oklahoma, which is the US's primary crude oil facility. Whereas in China, millions barrels of crude are still piled up in tankers offshore.

At New York's Tyche Capital Advisors, Tariq Zahir said, "We feel the Saudis will pump even more and a price war between them and the Iranians will drive us well into the $20 levels. We are sellers of any and all rallies in days and weeks to come."

In the U.S., consumers are happy because of the cheaper fuel price. Mentioned in the Washington Examiner, the University of Michigan's consumer sentiment index has reported that consumers become more confident about the economy this January.   

An economist from Michigan, Richard Cutin has shared similar ideas. The positive expectation now is the highest during the recession since 2007. He is anticipating that the consumer purchasing will rise to 2.8% within 2016 due to low inflation as an effect of the fallen energy prices. 

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