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China shocks with 18 percent fuel price rise
Chen Aizhu and Carolyn Qu, Reuters
China unexpectedly raised retail gasoline and diesel prices by up to 18 percent on Thursday, sending oil prices tumbling as Beijing moved to temper demand at the risk of stoking domestic angst over decade-high inflation.
The increase in regulated fuel prices, China’s first hike in eight months and its sharpest ever one-off rise, sent crude prices down by as much as $5 a barrel as dealers bet it might slow demand growth from the world’s second-largest oil user, while U.S.-listed shares in top refiner Sinopec soared.
(20 June 2008)
Related from New York Times: China Sharply Raises Energy Prices .
Oil tumbles as China lifts subsidies
Ben Rooney, CNNMoney
Oil prices sank nearly $4 Thursday after the Chinese government said it would lift subsidies on gasoline and diesel in a move that could curb demand from the country’s rapidly growing economy
… “The news out of China surprised the market,” Ray Carbone president of Paramount Options, said from the NYMEX floor.
Analysts were expecting China to follow the lead of other oil consuming countries that have lifted subsidies in recent weeks. “But no one expected it before this summer’s Olympic games, which is why the market reacted so violently,” Carbone said.
(19 June 2008)
Q&A with Guy Caruso, Administrator, Energy Information Administration
Jim Snyder, The Hill
In Congress and on the campaign trail, high gasoline prices are loosening opposition to offshore drilling. But there is no panacea for drivers this summer. As head of the Energy Information Administration (EIA), a non-policy component of the Energy Department that collects and analyzes energy data, it is Guy Caruso’s job to forecast how long the pain at the pump will last. The bad news: likely through 2009. Below, Caruso explains why oil prices have risen so precipitously and what could eventually cause them to drop back to historical levels.
Q: What has changed in the last 10 years?
There are two things that I think top the list. One is the very strong global economic growth since ’02. We’ve had six years in a row now where we’ve had some of the strongest growth ever recorded by the [International Monetary Fund]. That has concentrated in places like China and India – places that you hear about – but also even in Latin America.
What that has meant for oil demand is that we’ve had, on average, for the last six years, about 1.4 million barrels per day, per year of growth.
The second point is that that strong growth used up much of the surplus crude oil production in the world. So for the last four to five years, we’ve been operating with less than 2 million barrels a day in spare capacity in a world that consumes about 85 million barrels a day.
On a percentage basis, there is very little cushion in the system. And any time events took place that threatened supply or added to demand, the only balancing item was price.
(19 June 2008)
Dearth of Ships Delays Drilling of Offshore Oil
Jad Mouawad and Martin Fackler, New York Times
As President Bush calls for repealing a ban on drilling off most of the coast of the United States, a shortage of ships used for deep-water offshore drilling promises to impede any rapid turnaround in oil exploration and supply.
In recent years, this global shortage of drill-ships has created a critical bottleneck, frustrating energy company executives and constraining their ability to exploit known reserves or find new ones. Slow growth in oil supplies, at a time of soaring demand, has been a major factor in the spike of oil and gasoline prices.
(19 June 2008)
Energy sector has turned into a ‘bubble’
Warren Borsch, TC Business Journal
… T. Boone Pickens and the energy analysts of Goldman Sachs notwithstanding, the energy sector appears to be in a bubble.
There are always elementary facts at the root of bubbles, tulip mania included, and there is some basis for the recent oil price escalation. The current uptrends in oil and commodities prices are supported by constraints on supply and demand-pull pressures out of “Chindia.” Throw in the Federal Reserve’s recent liquidity injections, and you have the makings of a full-blooded bubble. What latecomers to any bubble fail to appreciate is that at some point all of the favorable fundamentals have already been priced in. One cannot say when the reversal will come, since valuations often reach extremes beyond imagining.
Still, You should be wary of ever rising price predictions for oil and the seemingly one-way bets now being made in energy stocks. Here’s why:
• Unless there is a big shift in prices before June 30, energy stocks will have outperformed the rest of the market for nine out of 10 quarters. A comparable period of market favoritism, the 10-quarter stretch ending in March 2000, during which technology stocks were the standout performer, ended badly for those tech stocks.
(15 June 2008)
