Faced with the drop in international oil prices, the Chinese and Indian governments’ responses are very different
International crude oil futures prices have fallen by more than 20 U.S. dollars over the past two weeks, but the two major oil-consuming countries in Asia, China and India, have reacted very differently. Both countries have been accused of fuel prices being used in the past for fuel subsidies. Six consecutive years of ascending accomplice.
India’s ruling coalition government recently won a vote of confidence in the parliament, and its eyes are even more anxious for the 2009 election. Officials are waiting for the next opportunity to cut oil prices. The Indian government raised fuel prices in June, causing the inflation rate to hit a 13-year high of 11% in the month.
In contrast, the Chinese government has lowered the international oil price to US$125/barrel, which is seen as a good opportunity to speed up the marketization process of the fuel pricing mechanism and ease the losses of Sinopec and other refining companies. The Chinese government is eager to link fuel prices with international standards in order to pursue "green" economic growth and ease energy consumption.
Although no one hopes that reforms can be achieved overnight, many people say that Chinese policymakers are still regretting that they failed to open the pricing mechanism in 2005. At that time they were indecisive, expecting oil prices to fall from US$60/barrel to open up pressure for pricing. . The result of waiting is undoubtedly futile, but now another hope is rising.
Joerg Wuttke, chairman of the European Union Chamber of Commerce in China, said: "The drop in oil prices has given the Chinese government a psychological advantage when it aligns oil prices with international standards, which is very important for ensuring energy security and improving energy efficiency."
Analysts believe that only when the oil price drops to 80-90 US dollars / barrel and stabilize, that is, when most Chinese-funded refining enterprises maintain the standard of quality, the government will only consider the price reduction. But for now, most analysts believe that it is extremely impossible.
The Chinese government has spared no effort to pave the way for the convergence of oil prices, highlighting the difference from the Indian government in that the price of gasoline and diesel in the former is lower than the international 40%, while the latter is half of the international level. ** Calls for a vigorous reform of the pricing mechanism**
In the face of China’s continuous two-month inflation data and the slowdown in economic growth next year, it is time for international oil prices to fall.
Local economists have continually called on the government to accelerate energy price reforms, first of all to move the ex-factory prices closer to the cost of oil to reduce the losses of refiners, thus allowing China to cancel multi-billion-dollar government subsidies. They said that if the government cancels the import VAT rebate, the retail price of gasoline and diesel must be raised by another 40% to catch up to the crude oil price of US$125/barrel, but last month, the price increase for refined oil was 17-18%. The above gap is not out of reach.
Although China has only allowed oil prices to rise by 15% per year since 2004, China International Capital Corporation Limited (CICC) is recommending that the government accelerate the pace to complete the price integration by the end of 2009.
According to Xing Zhiqiang, an economist at China Gold, "China's fuel prices are still lower than international standards. The last price adjustment was the first step towards the normalization of energy prices. If food price pressure eases next year, it will be within the next 18 months. An increase of 40% in fuel prices will keep inflation at the current level of 7-8%, which the government can tolerate.
Since 2003, China's fuel oil prices have only doubled, while US crude oil futures for September have soared more than four times in the same period.
China has yet to abandon price controls altogether, adopting a mode of price adjustment with a smaller margin and a higher frequency, so that the people gradually adapt to regular price changes, and at the same time subsidize vulnerable groups such as farmers, fishermen and taxi drivers.
"At this stage, the subsidy policy is to pay for the urban middle class to buy new cars," said Woodk, chairman of the European Union Chamber of Commerce in China. "This policy is not sustainable."
** India is also breathing **
In India, price policies seem to be more driven by short-term political interests than long-term goals.
After the Indian government substantially increased fuel oil prices by 10% last month, the current focus seems to be focused on when fuel prices will be lowered as the country’s ruling coalition is preparing for elections 10 months later.
India announced on June 4th that it will increase oil prices. This is the second time this year the price adjustment measure has also been the largest increase in the past 10 years. But in the past, India's price cuts were always faster than price increases.
"Compared to the situation six or seven weeks ago, the current drop in international oil prices has given the Indian government a breathing space in terms of the current high inflation and political pressures," said Amitendu Palit of Singapore South Asia Institute.
"If crude oil prices continue to weaken in the second half of this year, India's domestic oil prices are likely to be lowered. This will not only ease inflationary pressures but will also become a political victory," he said.
However, Indian oil officials have now ruled out the possibility of an immediate reduction in oil prices. Even though Indian oil refineries are still suffering huge losses, the government also has the burden of billions of dollars in oil subsidies.
The Indian refineries said that the domestic price of their fuel oil is equivalent to a crude oil price of US$67 per barrel, which is only half the current cost.
"The (international) oil price must be stable at a low level for at least six months or more before there is enough reason to lower the retail price," said an Indian oil ministry official who declined to be named.
India’s ruling coalition government recently won a vote of confidence in the parliament, and its eyes are even more anxious for the 2009 election. Officials are waiting for the next opportunity to cut oil prices. The Indian government raised fuel prices in June, causing the inflation rate to hit a 13-year high of 11% in the month.
In contrast, the Chinese government has lowered the international oil price to US$125/barrel, which is seen as a good opportunity to speed up the marketization process of the fuel pricing mechanism and ease the losses of Sinopec and other refining companies. The Chinese government is eager to link fuel prices with international standards in order to pursue "green" economic growth and ease energy consumption.
Although no one hopes that reforms can be achieved overnight, many people say that Chinese policymakers are still regretting that they failed to open the pricing mechanism in 2005. At that time they were indecisive, expecting oil prices to fall from US$60/barrel to open up pressure for pricing. . The result of waiting is undoubtedly futile, but now another hope is rising.
Joerg Wuttke, chairman of the European Union Chamber of Commerce in China, said: "The drop in oil prices has given the Chinese government a psychological advantage when it aligns oil prices with international standards, which is very important for ensuring energy security and improving energy efficiency."
Analysts believe that only when the oil price drops to 80-90 US dollars / barrel and stabilize, that is, when most Chinese-funded refining enterprises maintain the standard of quality, the government will only consider the price reduction. But for now, most analysts believe that it is extremely impossible.
The Chinese government has spared no effort to pave the way for the convergence of oil prices, highlighting the difference from the Indian government in that the price of gasoline and diesel in the former is lower than the international 40%, while the latter is half of the international level. ** Calls for a vigorous reform of the pricing mechanism**
In the face of China’s continuous two-month inflation data and the slowdown in economic growth next year, it is time for international oil prices to fall.
Local economists have continually called on the government to accelerate energy price reforms, first of all to move the ex-factory prices closer to the cost of oil to reduce the losses of refiners, thus allowing China to cancel multi-billion-dollar government subsidies. They said that if the government cancels the import VAT rebate, the retail price of gasoline and diesel must be raised by another 40% to catch up to the crude oil price of US$125/barrel, but last month, the price increase for refined oil was 17-18%. The above gap is not out of reach.
Although China has only allowed oil prices to rise by 15% per year since 2004, China International Capital Corporation Limited (CICC) is recommending that the government accelerate the pace to complete the price integration by the end of 2009.
According to Xing Zhiqiang, an economist at China Gold, "China's fuel prices are still lower than international standards. The last price adjustment was the first step towards the normalization of energy prices. If food price pressure eases next year, it will be within the next 18 months. An increase of 40% in fuel prices will keep inflation at the current level of 7-8%, which the government can tolerate.
Since 2003, China's fuel oil prices have only doubled, while US crude oil futures for September have soared more than four times in the same period.
China has yet to abandon price controls altogether, adopting a mode of price adjustment with a smaller margin and a higher frequency, so that the people gradually adapt to regular price changes, and at the same time subsidize vulnerable groups such as farmers, fishermen and taxi drivers.
"At this stage, the subsidy policy is to pay for the urban middle class to buy new cars," said Woodk, chairman of the European Union Chamber of Commerce in China. "This policy is not sustainable."
** India is also breathing **
In India, price policies seem to be more driven by short-term political interests than long-term goals.
After the Indian government substantially increased fuel oil prices by 10% last month, the current focus seems to be focused on when fuel prices will be lowered as the country’s ruling coalition is preparing for elections 10 months later.
India announced on June 4th that it will increase oil prices. This is the second time this year the price adjustment measure has also been the largest increase in the past 10 years. But in the past, India's price cuts were always faster than price increases.
"Compared to the situation six or seven weeks ago, the current drop in international oil prices has given the Indian government a breathing space in terms of the current high inflation and political pressures," said Amitendu Palit of Singapore South Asia Institute.
"If crude oil prices continue to weaken in the second half of this year, India's domestic oil prices are likely to be lowered. This will not only ease inflationary pressures but will also become a political victory," he said.
However, Indian oil officials have now ruled out the possibility of an immediate reduction in oil prices. Even though Indian oil refineries are still suffering huge losses, the government also has the burden of billions of dollars in oil subsidies.
The Indian refineries said that the domestic price of their fuel oil is equivalent to a crude oil price of US$67 per barrel, which is only half the current cost.
"The (international) oil price must be stable at a low level for at least six months or more before there is enough reason to lower the retail price," said an Indian oil ministry official who declined to be named.
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