China raised prices on diesel last month. The hope was to cut back use of trucks and drive down demand. With the price of oil at $95, all those vehicles making deliveries were putting pressure on the country’s supply. Raise prices, cut demand.
But, it could not last, even a few weeks. China needs all of the commerce built on moving goods around the nation and to ports to be sent out of the country. So, The Associated Press says that "China’s two main oil companies have promised to step up diesel production."
China will need more oil to fulfill this promise and not all of it can come from domestic supply.
There is no requirement that China’s two big state-owned oil companies, CNPC and Sinopec, have to make money. They can refine oil and sell the resulting products at a loss, if the central government thinks that will stimulate the economy.
All of this works its way into the global oil supply puzzle. China can leave market pricing aside and drive GDP in a way that few countries can. And, certainly no countries anywhere near its size can handle their energy needs this way.
China is in the unique position to drive oil above $100 all on its own. The decision to hold down gas and diesel prices and move up refinery targets is likely to do that.
Douglas A. McIntyre
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