China takes a big step toward reducing oil prices. By, uh, raising gas prices

  • Share
  • Read Later

The Chinese government today announced a significant step toward tempering global demand for oil. It’s raising the price of gasoline and diesel fuel. Reports the WSJ:

The new hikes, which take effect Friday, are the biggest in four years, and will push the base prices up by 17% for gasoline and by 18% for diesel, the National Development and Reform Commission said.

Retail fuel prices in China will still be kept artificially low. The same is true in India, where the government announced a similar price hike a couple of weeks ago but is still expected to spend something like 3% of GDP this year on fuel subsidies. But at least it’s a step in the right direction. And it raises two interesting thoughts:

1) China’s and India’s decisions on fuel subsidies over the coming years will probably have a much bigger impact on global oil prices than any of the various measures (a gas tax holiday, a windfall profits tax, allowing offshore drilling, suing OPEC) proposed by politicians in the U.S. in recent weeks.

2) The most reliable way to reduce (or at least slow the rise in) the price of oil is to raise the price of gasoline.

0 comments