Thursday, June 19, 2008

What happens when China reduces oil subsidies?

The linked Yahoo piece starts out with a blinding flash of the obvious: "China is raising fuel prices, a move that could dampen the booming Asian nation's oil consumption".

The piece further quotes several traders to the effect that "This could change the psychology of the market completely," and "A rise in prices in China "would be a major factor in driving prices down".

I don't think there's any question that Chinese oil consumption will stagnate or decrease if the government there reduces the insulation from market prices that consumers there now have.

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