China’s decision to suspend fuel price cuts is being characterized as “a first” by market analysts, who say that by doing so the Asian nation is conveying a message to OPEC that oil prices are too low, Bloomberg reports.
Analysts said in a report from Sanford C. Bernstein & Co. that “China’s decision to not cut refined product (gasoline, diesel) prices is a first.” This choice “sends a signal to OPEC that its largest customer (China) believes that oil prices are too cheap.”
The report says China’s decision to suspend price cuts is regarded as a measure that gives oil a price floor of approximately $38/bbl.
China is the second-largest oil consumer in the world. The country said its decision suspend fuel price cuts while oil prices continue to drop is aimed at slowing consumption growth and reducing automobile emissions. Gasoline demand in China rose 10.4% in the first 10 months of the year from the same period of 2014, according to the IEA.
“OPEC’s strategy of pushing prices lower is to increase demand and reduce non-OPEC supply growth,” the report cited by Bloomberg said. China is now telling OPEC “that pricing is now too low and they will gain incrementally less in terms of demand growth from further cuts in prices.”