Chinese economists: the decision of OPEC not significantly affect the Chinese economy

Китайские экономисты: решение ОПЕК незначительно скажется на экономике КНР

China will increase domestic oil production if the price of “black gold” will continue to rise due to the OPEC decision about reducing oil production, but this step will not have a significant impact on China’s economy, because oil is not the largest share in the energy consumption of the country, according to Chinese experts.

OPEC on Wednesday reached an agreement on the reduction from 1 January 2017 for its oil production by 1.2 million barrels per day — up to 32.5 million. The agreement presupposes the participation of countries not members of the organization. Their production needs a total decline of 600 thousand barrels per day, of which 300 thousand barrels per day agreed to provide Russia. The agreement is for six months with possibility of extension for another six months.

The expert of the Chinese Academy of energy strategy, candidate of economic Sciences, Liu Qian said that the Chinese market is the rise in oil prices would mean an increase in the cost of imports, but, on the other hand, is good news for Chinese oil companies, as the high price will help them to reduce losses and increase profits.

“I think that if the oil price will rise, China will increase the mining and oil and gas. If the price is at the current level or lower, production will certainly decline. Because for China the cost of its oil even more than the global average,” said Liu Qian in an interview with RIA Novosti. According to experts, in the case of rising prices, China will reduce the import and increase domestic production.

Liu Qian believes that the consumption of oil in China will largely be determined by economic growth. “If the growth rate will be faster than current, we will need more oil. In this case, China will increase imports. But if rates are at level of this year or worse, the import of oil, of course, reduced. It is difficult to say what oil demand will be in China next year”, — said a Chinese expert.

Energy expert at Xiamen University Lin, Bazan believes that, despite the rise in oil prices and the status of China as main oil importer, the impact on China’s economy by OPEC’s decision will be limited.

“If oil prices continue to rise, domestic transportation and chemical industry a devastating blow. However, oil is only 18% of the total volume consumed by China’s energy and coal remains the main source of energy for China’s economy”, — quotes the expert of the newspaper China Daily.

According to his forecasts, the price of oil could rise to $60 per barrel by the middle of next year, and this increase is still moderate and has more of a psychological than practical impact.

Will there be an effect?

Chinese experts are cautiously and with some skepticism reacted to the consistency of the OPEC decision. Liu Qian, noting that the agreement is sufficiently serious and the first specific agreement on the reduction of oil production, stresses that while it is necessary to wait for concrete actions from the Contracting parties.

“This is a major agreement among oil-producing countries. For the past few had reached such a serious agreement. It has specific quotas for OPEC members… in addition, Russia as the largest oil exporter outside of OPEC has also pledged to reduce oil production… the Decision has already led to an increase in the cost of Brent crude oil in the short term. The rise in oil prices in the long term will depend on the specific actions agreed countries and whether they actually adhere to their promises,” — said the expert RIA Novosti.

Chief economist of Citi Group China Liu Ligang, in turn, believes that the influence of OPEC in the world is weakening.

“Despite the fact that OPEC produces 1/3 of the world’s oil, the impact of the organization in the global energy architecture weakens”, — quotes the expert of the newspaper China Daily. The economist notes that the rise in oil prices will lead to higher supply of shale oil, which in turn will limit further growth of the world prices for crude oil.

“Thus, the impact of rising prices on China’s economic growth will be fairly small, as it is questionable whether the price rise is sustainable,” sums up the expert.

Китайские экономисты: решение ОПЕК незначительно скажется на экономике КНР