Oil Storms

24.07.2005., nedjelja

Revaluation of the Chinese Yuan

"The potential impact of a revaluation of the Chinese yuan (which is currently pegged to the US dollar) on the Chinese oil market has been a subject of debate. Some have said that the yuan may be as much as 30-35% undervalued versus the US dollar. Although most believe that it is extremely unlikely that the Chinese government will substantially revalue, or allow the yuan to float freely, the pressure for some level of revaluation does appear to be building. Because the retail price of the major oil products is regulated by the government, it is difficult to state with certainty the impact of a revaluation on oil consumption. However, it does appear that a revaluation would boost consumption, at least in the short run.

Price impact on oil consumption

A revaluation would reduce the cost of imported oil and products. In the present environment, however, where retail prices are below international levels, the government may choose not to pass the reduced cost on to consumers at the retail level.
Rather, refiners might be allowed to boost their refining margins, which are currently very low or in some cases negative. In any case, the impact on apparent demand would likely be positive as at the margin domestic suppliers would be more inclined to supply the domestic market, rather than exporting products as they have in recent months. This would boost consumption by eliminating rationing/shortages, of which there have been some reports.

Impact of the income effect on oil consumption

In the long run, a revaluation could slow merchandise exports, reduce economic growth and slow oil demand growth. In the short run a revaluation could boost China’s economy as the cost of imports goes down and it would take time for consumers of China's merchandise exports to shift their purchasing patterns. The net impact is a brief increase in Chinese purchasing power, and possibly more rapid oil demand growth in the short run.

Of course, the overall impact of a revaluation on the Chinese oil market will depend on the magnitude of the revaluation and international oil prices at the time, but it should also be noted that a revaluation could have a broader impact on the Asia Pacific region. Although the currencies of the other major oil consumers in Asia have generally risen versus the Chinese yuan and the US dollar, countries have intervened in an attempt to limit the increase in the value of their currencies in an effort to maintain their competitive position versus China. If the Chinese revalue, other countries might also revalue, or allow their currencies to appreciate, which would reduce the price of oil in terms of domestic currency, possibly spurring demand"

FYI, Kina je ipak revalvirala Yuan u cetvrtak! Ne bas znacajno, ali znakovito...

LONDON (AFP) 7/22/05 - Oil prices rose, supported by a revaluation of the yuan currency the previous day, seen as encouraging Chinese demand for energy from the world's second-biggest consumer of crude. New York's main contract, light sweet crude for delivery in September, added 87 cents to 57.95 dollars per barrel in early deals on Friday. In London, the price of Brent North Sea crude oil for delivery in September increased by 1.00 dollar to 56.72 dollars per barrel. According to Sucden analyst Sam Tilley, oil prices on Thursday "recovered some losses from the previous few days after China announced it would revalue its currency".
"A revaluation of the yuan could possibly increase demand for crude in China as imports would effectively be cheaper, but in the longer term the revaluation could slow China's growth."

Late on Thursday the Chinese central bank had announced that the yuan was now pegged to a basket of unnamed currencies and would be allowed to "float" within a 0.3-percent range from its new value of 8.11 yuan to the dollar. That value effectively represents about a 2.0-percent appreciation of the yuan which for a decade was pegged to the dollar at around 8.28 yuan per dollar. Analysts said that the revaluation makes it moderately cheaper for Chinese buyers to purchase oil imports because they are denominated in US dollars.

LONDON - Iznenađujuća odluka Kine o aprecijaciji juana na deviznim je tržištima prošloga tjedna rezultirala rastom vrijednosti azijskih valuta te spuštanjem tečaja dolara. Prvi put u zadnjih gotovo 10 godina Kina je aprecirala svoju valutu, postavivši u četvrtak novi tečaj za američki dolar u visini od 8,11 juana u odnosu na dosadašnjih 8,28. Također, ukinula je desetljeće staro fiksno vezivanje juana za dolar te umjesto toga uvela vezivanje tečaja nacionalne valute na košaricu valuta.

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