Oil Falls 3 Percent as China Hikes Fuel Prices

NEW YORK—Oil prices plunged more than 3 percent on Thursday on concerns that a move by China to raise fuel prices would curb demand in the world's second largest oil consumer.

U.S. crude fell $4.50 to $132.18 a barrel at 12:28 p.m. EDT , while London's Brent crude dropped $3.95 to $132.49 a barrel.

China announced a surprise increase of about 18 percent in retail gasoline and diesel prices, effective Friday, state media said, the first rise in Chinese fuel prices in eight months.

Soaring energy use in China has been one of the pillars of the six-year oil rally that has sent prices up nearly seven-fold to almost $140 a barrel.

High fuel costs have already shown signs of denting demand in consumers such as the United States and Britain, while emerging economies such as India have cut subsidies.

"This is very significant, a watershed move, which suggests the Chinese government is prepared to risk unpopularity to curb the growth in domestic fuel demand," said John Kemp, an economist at RBS Sempra.

"We've already seen other Asian economies cut subsidies and the big one to hold out, until now, was China."

The move came just days before an emergency meeting on Sunday in Saudi Arabia between consumers and producers to discuss rising oil prices.

Saudi Arabia, the world's top exporter, is hiking output to help bring down prices, which have jumped nearly 40 percent this year and caused protests around the globe.

Earlier crude rallied to above $137 after militants in speedboats attacked Royal Dutch Shell's 220,000-barrel-per-day Bongas field in Nigeria. The rebel Movement for the Emancipation of the Niger Delta also said it might carry out further attacks on oil facilities.

Nigeria, another member of the Organization of Petroleum Exporting Countries, is already producing about 20 percent below its potential due to sabotage by militants in the southern Niger Delta oil hub.

Goldman Sachs raised its oil price forecast further on expectations of continued supply tightness, predicting Brent oil would average $117 a barrel this year, up from its previous estimate of $108. The bank forecast crude prices will average $140 next year.