Lit­tle ef­fect ex­pected in OPEC cuts

China’s lim­ited re­liance on oil likely to re­strain ef­fect of pro­duc­tion cuts

China Daily (USA) - - FRONT PAGE - By XIN ZHIMING in Bei­jing xinzhim­ing@chi­nadaily.com.cn

OPEC’s first agree­ment to cut oil pro­duc­tion in eight years is set to push up oil prices, but an­a­lysts said it will have only a lim­ited over­all ef­fect on the Chi­nese economy given the low pro­por­tion of oil in its en­ergy mix.

The Or­ga­ni­za­tion of the Pe­tro­leum Ex­port­ing Coun­tries agreed on Wed­nes­day to cut its oil out­put by 1.2 mil­lion bar­rels per day start­ing next month. It is the first such con­certed move by the or­ga­ni­za­tion since 2008 and is ex­pected, to­gether with Rus­sia’s agree­ment also to re­strict oil pro­duc­tion, to push up oil prices.

In­ter­na­tional oil prices have fluc­tu­ated around $50 a bar­rel re­cently, up from below $30 a bar­rel early this year. “The prices of com­modi­ties, such as coal and iron ore, have soared in re­cent months, and it is only nat­u­ral for oil prices, even with­out the moves of OPEC, to move up­ward,” said Lin Bo­qiang, a se­nior re­searcher on en­ergy at Xi­a­men Univer­sity. “OPEC’s an­nounce­ment to cut sup­ply will give oil prices a big boost,” he said.

Coal prices have risen by about 60 per­cent, and those of iron ore have more than dou­bled in a year. Lin said in­ter­na­tional oil prices may rise to $60 a bar­rel by the

mid­dle of next year.

De­spite the con­tin­ual rise of oil prices and China’s sta­tus as a ma­jor oil im­porter, Lin said the ef­fect on the Chi­nese economy will be “lim­ited”.

“If oil prices con­tinue to rise, the do­mes­tic trans­porta­tion and chem­i­cal in­dus­tries will suf­fer a heavy blow,” he said. “But oil ac­counts for only about 18 per­cent of the coun­try’s pri­mary en­ergy use and coal is the main source of en­ergy for the Chi­nese economy.”

Oil price in­creases have re­mained mod­er­ate so far and the ef­fect is more psy­cho­log­i­cal than sub­stan­tial, he added.

An­a­lysts also ex­pressed skep­ti­cism about the sus­tain­abil­ity of OPEC’s ac­tion.

Although it still pro­duces about one-third of global oil, “the in­flu­ence of OPEC in the global en­ergy land­scape is weak­en­ing ,” said Liu Li gang, chief China econ­o­mist of Citi Group.

As oil prices rise, the sup­ply of shale oil will in­crease, re­strict­ing the rise of oil prices, he said.

“There­fore, the im­pact of oil price in­creases on China’s eco­nomic growth will be quite slight since it is doubt­ful whether oil price rises would be sus­tained,” he said.

Li Li, en­ergy re­search direc­tor of en­ergy mar­ket con­sul­tancy ICIS China, added, “De­spite the fact that the OPEC deal to curb crude oil pro­duc­tion might help bol­ster global oil prices in the short term, oil prices won’t soar de­spite a re­cov­ery in the short term.”

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