China's Gas Price Increase and the Impact on Crude Oil

China pushed up domestic prices of gasoline 16%-18%. Prices of jet kerosene will rise 25% while electricity will rise 4.7%. A gallon of gas in China now costs $3.29, just below the international market price. This increase in gas prices will have an impact on Chinese inflation, which edged slightly down in May and gave policy makers just enough room to increase energy prices.

Global crude prices fell following the announcement, but many still wonder whether pent up demand in China and the reduced costs to refiners who turn crude into petrol may actually increase consumption. Motorists who waited 6 hours in line for gas may actually buy more despite high prices.

Snapshot asks, if there is pent up demand, how much will higher energy prices push up global crude prices and Chinese inflation?

Hank Paulson - Remarks on the 4th meeting of the strategic dialogue
Wang Qishan - China-US energy efforts would be win-win
World Bank - China Quarterly Update June 2008
Financial Times - China increases oil prices