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China Sourcing Update: Energy Costs (Jan 2018)

Energy Costs

1. Crude prices rise and then retreat in January

In line with the movement of global crude prices, China’s crude prices trended upward throughout nearly the whole January before retreating in the last few days in the month.[1] For instance, after rising from US$60.0 per barrel on 29 December 2017 to US$63.5 per barrel on 25 January 2018, the Daqing[2] crude price dropped to US$61.0 per barrel on 31 January 2018.

Two major factors were behind the jump in global oil prices in the month till 25 January. First, concerns over the global oil supply glut continued to ease, thanks to strong oil demand growth underpinned by a healthy global economy, as well as production cuts led by the Organization of the Petroleum Exporting Countries (OPEC) and Russia. Second, the weakening of the US dollar, in which global commodity prices are denominated, also boosted oil prices. The US Dollar Index, a measure of the value of the US dollar relative to a basket of foreign currencies, went down by more than 3% in the period.

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[1] From the year 2000 onwards, China’s crude prices were determined with reference to global crude prices.

[2] Daqing Field is the largest oil field in China.

Content provided by Fung Business Intelligence
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