Driving's a gas in China
Price hikes unlikely to dampen demand
SHANGHAI - Chinese motorists, long accustomed to cheap gas, seemed to take in stride a government decision to boost fuel prices by as much as 18 percent.
"Maybe I might drive a bit less. But if it's for business, then if I have to drive, I will," said He Ping, a trading company employee who was refilling his VW Jetta yesterday at a Beijing gas station.
There were at least a dozen vehicles waiting behind him.
While higher prices for China's state-controlled fuel will inevitably squeeze consumers at both filling stations and grocery stores, analysts say it is unlikely to make an immediate or huge dent in the country's hunger for oil.
China's economy is booming, and people are buying cars and air conditioners as their incomes grow. There is huge pent up demand in a country of 1.3 billion, where per capita energy consumption remains far below western nations.
"It's still affordable," said a man who was filling up his car, who gave only his surname, Pan.
The 12.6 gallons of gas Pan bought cost him $46. That's $3.65 a gallon.
The silver lining is that with the government increasing prices, refiners may finally boost production of gasoline, diesel, and other refined products, helping to alleviate long lines at gas stations and a widespread fuel shortage.
Refiners have cut production because they were losing money on the wide gap between global crude oil prices and state-set retail prices. While the government paid billions in subsidies to China's two big state-owned refiners, many smaller refiners were shutting down.
"Do not expect an immediate fall in China's oil imports - the price effect on demand will work in China as well, but it will take some time to work through," Wang Tao, an economist for UBS Securities, said in a report issued yesterday.
Crude oil for July delivery rose $2.69, or 2 percent, to settle at $134.62 a barrel on the New York Mercantile Exchange.
Some analysts said the oil market may have overreacted to the news from China, with some traders buying oil futures on the belief that their climb will continue.
"Whether domestic demand cools, or the price increase simply serves to bring more refining capacity online to satisfy China's voracious appetite, remains to be seen," said Jing Ulrich, chairwoman of China equities for JPMorgan Chase & Co.
The government last hiked fuel prices about 11 percent in November. It froze prices to avert further inflation, which has touched 12-year highs since the beginning of the year.
