Asia to Cut Energy Subsidies as Oil Prices Surge
May 23rd, 2008 | By Contrarian Profits | Category: Featured, Financial NewsAs crude oil prices smash the $135-a-barrel barrier for the first time, Taiwan, Malaysia and Indonesia say they will take action to protect their state-owned oil companies.
“If oil prices keep going up, it is simply not in any country’s best interest to keep subsidizing these prices indefinitely,” says Peter Gastreich, a UBS oil and gas analyst, in the Financial Times. More from that story:
The recent surge in the price of oil has been particularly painful for Asian oil importers such as India, where imports cover 73 per cent of petroleum needs. But it has also deprived state energy companies of additional revenues to make bigger investments in exploration, as well as downstream infrastructure.
Analysts warned that planned cuts in subsidies and controls would have to be followed by more substantial energy market deregulation.
The Chinese government said that stock market rumors of an imminent increase in domestic fuel prices were “groundless”. However, analysts forecast that Beijing would eventually endorse subsidy cuts.
“The story of oil is no longer a U.S.-centric story,” says Chris Mayer in The Daily Reckoning. “China and India are only beginning to consume oil at any meaningful level. Right now, they are consuming oil at a rate the U.S. did in the early years of the 20th century.
“But look, we don’t need China to start guzzling oil like we do. Even if it moves half the distance between it and Hong Kong, that’s a lot of extra demand. The way I look at it is this: What’s more likely, China stays at 1910 oil usage or moves somewhere closer to, say, 1950s U.S. oil usage? I think the latter.”
Jason Simpkins in Money Morning says: “Every investor must have a China strategy. And that also holds true for the energy sector.
Read on here for a long-term play on both China and on oil prices. Jason reckons investors with the patience to let such a strategy play out may find this a profitable pick.
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