Oil tumbled this morning after China said they are set to raise gas and diesel prices by 1,000 yuan ($145.39) per tonne tomorrow. Analysts fear that this move will slow demand growth from the world’s second largest oil consumer and drive prices down. But they couldn’t be more wrong!
My opinion: If China cuts subsidies and effectively raises energy prices, that’s NOT going to quell demand. Exactly the opposite. It’s going to increase demand as consumers in China begin to expect rising prices and start buying in anticipation that prices will be even higher down the road! That will increase demand even more.
That’s not to say oil is going to head straight up here. A pullback is overdue.
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