China to raise price of fuel

A few weeks ago we discussed the possibility of more demand destruction as a result of India raising fuel prices by 10%.

Now, we see an unexpected 18% rise in the price of fuel in China. With the two largest countries in the world cutting fuel subsidies, it is likely that we will see demand destruction outside of the 2% reduction in miles driven by americans. Without a doubt, it is in the interest of the United States to see a cut in demand from Asia.

Could this action be the result of a recent meeting of top finance officials from the US and China?

(Treasury Secretary) Paulson said it was critical that the United States and China, the world’s two largest importers of oil, increase their cooperation on energy issues in the face of increased demand and record-high oil prices.

Regardless of what instigated this change in policy by China, the lessening the distortion in the world energy market will help ease the impact of oil depletion in the long-term.

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