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Oil drop ends crude swagger

As prices rose to $147 a barrel, nations such as Iran, Russia and Venezuela had revenue to back their ambitious policies, and bluster. But the dip to $70 may put a dent in plans. Subsidies take the edge off fluctuations

October 20, 2008|Mark Magnier | Times Staff Writer

BEIJING — Li Baosen, a Beijing cabby for the last three years, took a break the other day outside a gas station after filling up his tank. Is he happy that oil prices are around $70 a barrel? Yawn. Did he suffer when they hit $150? Yawn.

China remains well insulated from the effects of global oil price fluctuations as part of the government's continued policy of subsidizing, shaping and otherwise "guiding" the market. This is done partly as a way to control the economy, analysts say, and partly to prevent social unrest.

Not that China is immune: Prices at the pump went up this summer to about $3.50 a gallon. But companies and the government stepped in to cushion the blow. Li's taxi company, for instance, helped reduce the effect on his paycheck.

"China doesn't keep step with the rest of the world," he said. "That's good when prices don't go way up" in China.

But Beijing is in lock step with the rest of the world on other fronts. China has an enormous export machine pumping out low-cost blenders, bathing suits and toys. And exporters are hurting as the global economy slumps. Still, China's export industries account for only about 10% of the nation's oil use, said Dave Ernsberger, who is Platts energy news service's Singapore-based Asia editorial director.

Overall, Chinese oil demand will not grow quite as fast, analysts say, but it will continue to grow, in contrast to the 5% drop in demand seen in the U.S. market recently.

If for some reason analysts are wrong, however, and Chinese demand does drop significantly in tandem with falling U.S. demand, global oil prices could halve again to about $30 a barrel, Ernsberger said. But that's unlikely.


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