China gives cue to OPEC: Oil prices have fallen too far

China’s decision to suspend fuel price cuts as crude continues its decline is sending a signal to the Organization of Petroleum Exporting Countries that prices are too low, according to a report from Sanford C Bernstein. The move gives oil a price floor of around $38.

“China’s decision to not cut refined product (gasoline, diesel) prices is a first,” analysts wrote in the report. The move “sends a signal to Opec that its largest customer (China) believes oil prices are too cheap.”

China, the world’s secondbiggest oil consumer, said it will suspend fuel price cuts while crude continues to fall to slow consumption growth and trim automobile emissions.

Gasoline demand in the country has increased 10.4% in the first 10 months of the year from the same period of 2014, according to the Paris-based IEA. Opec raised crude production to the highest in more than three years in November and scrapped its output ceiling at a Dec 4 meeting as it pressed on with a strategy to protect market share and pressure competing producers.