By Chris | November 6, 2007
The latest Economist reports:
“A price this high should also temper demand for oil. Motorists’ thirst for fuel does indeed seem to be faltering in rich countries. But as Francisco Blanch of Merrill Lynch notes, most of the incremental demand for oil comes from China, India and the Middle East, where the prices of petrol and diesel are subsidised or capped, leaving drivers with little incentive to cut back. Until the governments concerned start making consumers pay the market price, appetite for oil is likely to remain strong. There are signs of this: on October 31st the Chinese government raised the price of fuel for the first time this year.”
The Chinese government raised prices by 10 percent. With China’s robust market economy, it is easy to forget that many elements of command and control are still exercised by the Communist party. Hopefully, higher prices will curtail the growth of oil consumption in China. Last year, Chinese imports of crude oil grew 14 percent. While oil consumption in a developing country is a positive thing, consumers are purchasing too much oil if they aren’t paying its true price.