Depressed by the global economic recession and Wall Street turmoil, the price of crude oil plummeted heavily this week. Market analysts said the drop would bolster China's economic development.
PRICE PLUNGE AMID ECONOMIC TURMOIL
The turmoil on Wall Street in the wake of the U.S. sub-prime crisis is far from conclusion. Global financial markets tumbled again after the historical "Black Monday" on Sept. 15 when the fourth biggest U.S. investment bank, Lehman Brothers, filed for bankruptcy. Adding to the woes,financial giant Merrill Lynch was taken over by Bank of America, while leading insurer AIG needed an85 billion U.S. dollar bailout from the U.S. government to keep afloat.
This was accompanied by a tumbling price for crude oil. Light, sweet crude for October delivery fell below the 100 U.S. dollars per barrel level to hit 95.71 U.S. dollars on the New York Mercantile Exchange (NYMEX) on Sept. 15, a 35 percent drop from the record 147.27 U.S. dollars of July 11.
"An ebbing world economy and declining demand for crude oil has dragged down the price, while a stronger greenback and weaken speculation also led to the result," said Jiang Xinmin, an expert with the National Development and Reform Commission, the country??s economic regulator.
"Speculators are prone to sell off oil if demand is expected to fall in the future. They will shift to speculate in some other commodities and financial products. This will further help a fading price," he explained.
Professor Dong Xiucheng of the Beijing-based China University of Petroleum said the world's big investment banks were the major speculators and participants in the futures markets. They had contributed much to the surging oil price.
"However, this wave of financial crisis is expected to play the role of an alarm bell, which will warn them to give up excessive and abnormal speculation in crude oil markets in future."
Jiang predicted the price would very likely stay bellow 100 U.S. dollars a barrel for a long period. "Crude prices will come back to reflect the world economic situation."
EASING INFLATION PRESSURE
The "crude oil price fall will help China to tame inflation, which is one of the country's biggest pressures currently," said Tang Min, China Development Research Foundation deputy secretary general.
Because of the booming economic development and severe natural disasters this year, the country's consumer price index (CPI), a main gauge of inflation, rose 7.9 percent in the first half over the same period last year. It hit a 12-year high of 8.7 percent in February.
This nearly doubled the country's target figure. Earlier this year the nation set a goal of limiting CPI to 4.8 percent for 2008.
"China's inflation pressure has grown tougher as the prices of world goods and commodities rose sharply this year amid surging oil prices, because oil is one of the most important raw materials and components of industry," Tang said.
Last year, the nation imported 163 million tonnes of crude, up 12.4 percent over the previous year. This accounted for nearly half of the oil consumed nationwide, according to China Customs figures.
"The country has become more and more reliant on international trade and the world market after it adopted the opening-up policy," Tang said. "This means the rising crude prices would pass onto the domestic industries and consumers easier."
"It's not difficult to understand a falling oil price is passed on to other domestic industrials. It will pull down prices of the whole industrial chain."
Zhao Jinping, an economist with the State Council, the country's Cabinet, added: "Although inflation has been eased a little in recent months, the producer price index (PPI) continues to increase, which indicates the raw material price is still high. Inflation could not be solved at the root if oil prices stay high."
According to National Bureau of Statistics figures, the PPI for the country's industrial products jumped 8 percent in the first seven months over the same period last year.
"The oil industry is the one of the most upstream in the industrial chain," said the NDRC's Jiang. "Enterprises will reduce their business costs greatly when oil prices plunge. This may benefit consumers, tame inflation and boost the economy."
Tang adds, all in all, the country is expected to face less inflationary pressure if the oil price continues to fall.
