OPEC surprised the market with…
In the modern oil market,…
At least for the time being, the Chinese government is dropping its “price adjustment,” or discount, for retail gasoline and diesel fuel as it struggles to combat the country’s growing pollution problem.
The National Development and Reform Commission (NDRC) issued a statement Tuesday saying, “Giving full play to the leverage effect of refined oil prices is an important way to promote energy conservation and tackle air pollution.”
Since the spring of 2013, the NDRC has been adjusting automotive fuel prices for consumers whenever the average global price of oil leads to changes the prices of gasoline and diesel by more than 50 yuan (about $7.70) per metric ton within 10 working days.
Because crude prices have fallen in the past two weeks, China had been expected to announce a reduction in the retail cost of these fuels on Tuesday. Instead it announced that the price-adjustment program would be suspended as it grapples to reduce the smog that chokes its cities. “Emissions from automobiles are one of the major reasons for air pollution,” the NDRC said.
Related: $30 Oil Will Accelerate Much Needed Rebound
“When the price of oil is low,” the statement said, “maintaining a fundamentally stable price for refined products helps restrain the too-fast growth in oil consumption and energy structural change, spur environmental protection, and improve air quality.”
The pollution has become so bad that on Dec. 8, Beijing issued a red alert on behalf of its 23 million inhabitants that shut down factories in the capital region, forced millions of vehicles off the roads and urged schools to close. It was the second time this month that the city was beset by pea-soup smog.
“It is history – this is a precedent set,” Ma Jun, director of the Institute of Public an Environmental Affairs in Beijing, told The Guardian at the time. “This is extremely important to stop children from being exposed to such a high level of pollution.”
Related: Fed Rate Hike Bad Timing for Crude Oil
Smog levels in the capital area were elevated the previous week as well, and the government faced strong criticism for passing up the opportunity to order a red alert then. Smog levels in some areas around Beijing soared to 40 times the limits set by the World Health Organization. Levels of microscopic particulate matter carbon exhaust exceeded 900 micrograms per cubic meter.
The problem is so bad that researchers at the University of California at Berkeley say this pollution is killing 4,000 people in China each day, or fully one-sixth the the country’s premature deaths. “It’s a little hard to wrap your mind around the numbers,” said the report’s lead author, Robert Rhode.
Related: Gazprom Rapidly Losing Grip On European Markets
China is targeting automotive fuel as the country's heavy manufacturing sector is slowing down and, as a result, motor vehicles are generating a higher proportion of pollutants, according to the International Energy Agency (IEA), the Paris-based organization that advises 29 developed nations on energy policy.
In its monthly Oil Market Report on Dec. 11, the IEA said gasoline demand in China rose by 10.4 percent from January to October 2015 over the same period in 2014. At the same time, it said, demand for diesel and fuel oil was weak. Therefore, the agency said, it appears that “the Chinese economy is undergoing a structural transformation – shifting from heavy manufacturing/exports towards a more domestically focused economy.”
By Andy Tully of Oilprice.com
More Top Reads From Oilprice.com:
Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com