Alot of traders, speculators, analysts have predicted that China will rise oil prices after the olympics. However, following a 6.5% drop in the Chinese market yesterday, Chinese officials announce that retail gas and diesel prices will rise 18%.

a) Which market do you think will be most affected by the Chinese announcement of gas/diesel hike?

b) Will KLCI be affected?

c) Is this China's market doomsday?

d) Will oil futures finally drop sharply amid demand destruction?


Chinese oil price hike
http://www.reuters.com/article/ousiv/idUSL1922854020080619

Unless OPAC increase their production significantly, I would say that oil prices will not fall, at least not below $100 anymore. How much the govt increase the price, users will still pay. Especially in China where bad public transport and economic growth is still above average, price increase won't dampen the demand.

Although supply is limited and production on offshore fields are costly, i do think China's price increase will bring oil down to its "normal price equlibrium" I do agree with you though; its' going to be somewhere $100 per barrel.

However, how does this affects Chinese businesses as electricity has increased? With yuan on a tear, exporting is now more costlier than ever.

The way I see it is, the problem with oil is not so much on supply, but
demand.

People (in a generic sense) complain about oil price, and may decrease their usage, but not by much. This is different from other items where if the price goes up by too much, people will stop using it altogether. Can't see that happening with oil.

Whatever decreases there may be in the oil price, other people would compensate for it by increasing their demand. So my guess is there will be a short term correction to around $120.

I disagree with you. Oil is not a renewable resource. Unlike ethanol which we can get from jagung and sugarcane, the places where we can dig for oil is getting less and less. So we have a problem with supply although not at current time but it will run out.

On the other hand, the demand is getting greater. The US maybe the world biggest net importer of oil but China is following closely. The US floats the oil price unlike China still maintain a fix price to partially control the inflation and keep the gap of the rich and poor to a minimum.

Owning a car in CHINA is becoming a trend as bicycles give way to motorcycles, cars, trucks and etc. This is very evident with the spacious 6 lane roads that you can see in CHINA as compared to our roads with double park cars both side of the road

Sooner China will be like in Malaysia, the car and motorcycle will become a necessity like TV, fridge, air-con and all important washing machine. And all this runs on electricty which are runned mainly on generators that uses oil as fuel.

My guess is oil will spiral higher and higher.

Completely agree... The number of car is increasing dramatically due to the prosperity in the automobile industry...

A hike in oil prices will often impact the purchasing power of consumer..

I've heard a report from newspaper stating the chinese government is seeking measurement to increase yuan valuation...

Aisamalaikum

You realize you are agreeing with me after all?

If it is really a supply problem at the current time, we would hear about power generating stations and petrol stations closing down or petrol being rationed at the petrol pumps, and airline flights being cancelled. But that's not the case, is it? In fact, both MAS and AirAsia are both actively promoting specials at the moment.

Sure oil will run out in future, but a big problem at the moment is speculators driving up the price of oil, and they can get away with it because of the demand.

Yup, we have adequate supply for time being, there is no shortage around the world. We don't see petrol station running out of petrol nor we see power station running out of diesel.

But the problem come from, as people think it is non-renewable resources then automatically people will think price will get higher due to it is not a renewable supply materials. So people will speculate the price will go higher so traders, speculators come into the oil futures market to buy oil eventually causing demand ballooning beside real demand increase from China, India etc. So you have double effect on demand side. While supply side there is no shortage, but there is not extra significant spare capacity to meet those 2x effect from demand (demand from traders, speculator, commodity funds etc + real demand increase from China, India). So price keep on spiralling up as there is imbalance of demand and supply side on futures market.

But in real physical oil, supply and demand is at equally equilibrium. If there is a real imbalance in physical oil, then we will have shortage in petrol station, power station can't get enough diesel and aircraft find difficulty to buy jet fuel. This imbalance supply and demand did occur during 1970's whereby you saw petrol station put up a notice 'run out of petrol'. But now, we haven't seen it.

Actually, oil proven reserves without new oil field being explored or extract oil from oil sand, it at least will able to supply human kind usage for at least 30-40 years time.

So oil price currently has some degree of speculation in it which create a lot of artificially demand (those whom are not going to use the physical oil anyway). But how high oil price can go has its limit. If price goes up too high, then it will be kill the demand. Just like recently, after petrol price increase, sales of petrol in litres is decreasing, and traffic jam is some place is lesser. So if oil price is too high, it is demand destruction factor eventually will bring the economy into recession, then oil price can go down because demand become lesser.

Actually if world economy especially like US and China go into recession, then oil price will face some difficulty to go up anymore. But China is growing at robust rate until now, a red hot economy.

Just my view.

This post has been edited by cherroy: Jun 21 2008, 04:20 PM

When people start thinking negatively about the future, this is what happens. We dont have any shortage, and yet they are speculating that soon we wont have enough of this and that.

If you dare to speculate, you will not be doing business and you will be into hedge funds already. Steel are so abundant and yet the price shoot almost 10% each month till you dont believe your eyes. I can tell you the shortage the market is experiencing is NOT TRUE AT ALL. The price control by our government which is why the manufacturers dont want to part with their stock. Its quite funny how the government protect Malaysian industries and banned exports for traders like us and yet allowed manufacturers to export. 2 days ago I went to MITI and have a discussion about why exporting was banned. They told me there is shortage. I answered if you have any complaining customer, just refer to us as I have stock from last year. LOL... our beloved f4rking government introduce price ceiling to let manufacturer earn more when oversea price is lower. Now that oversea price are higher, they bite you again with new policy. I would say SCREW YOU!!!

Are you from steel industry?

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Added on June 22, 2008, 10:35 pmWell not so sure because this will affect the China export. Any increase in Yuan make the manufacturing in China not competitive. Maybe this will help to slow down its overheated economy.

This post has been edited by georgechang79: Jun 22 2008, 10:35 PM