As China makes the move to pass on more of the cost of energy to the Chinese people, there is speculation on what the long term effect will be on the market supply of oil. It has already been seen that the price to tank up a car can change how people act. When it comes down to feeding your car or your stomach, your stomach wins every time.
Understanding the reason for this price increase is very clear. If potential buyers of products made in China can’t afford them because too much of their money is being spent on energy, China’s economy will suffer. If the negative trend continues China may suddenly come to the conclusion that the meat on the table is coming from it’s own rump.
The effect of this decision however will be short lived at best as global energy demand still continues to rise daily. Global population is expected to reach 7,000,000,000 by 2012 if unchecked by nature. The 6,000,000,000 mark was in 1999 and it was roughly half of what it is today around 1965. It is undeniable this population trend is self destructive as we further increase demand on food and energy. In comparison when the global population was 6 billion, the price of oil was about $12.00 per barrel, and in 1965 when the population was half of today’s oil was $3.00 per barrel. The price of oil was mostly unchanged from 1953 to 1969 as the supply was much more than the demand.
How the Chinese people will respond to this sudden 18% increase has yet to be seen, however the answer to that question will be much clearer in the next few months. As the Chinese seem to be buying American made cars, Detroit’s reaction will be an indicator to watch. The markets expectation was obvious with a sudden $4.00 drop in oil prices when China announce the change. This is a case of not counting your chickens before they are hatched as other market factors can increase the price of oil just as fast.