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Fuel price cut in the offing
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14:50, July 22, 2009

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In line with the recent drop in international crude oil prices, China may consider cutting its retail fuel prices at the end of this month, said industry insiders.

Xu Bin, analyst with Changjiang Securities, said the government is likely to adjust fuel prices under the current change in global crude prices. "If the international prices drop below $60 per barrel at the end of July, based on previous experiences, the price reduction in domestic refined oil would be around 400 yuan to 500 yuan per ton."

Zhong Jian, analyst with the Shanghai-based oilgas.com.cn, echoes Xu's opinions. "It would not be surprising to see changes in gasoline and diesel prices next week."

But Zhong said this round of price cuts would be around 200 yuan per ton.

Under a new pricing system this year, domestic fuel prices would be adjusted when the moving average of a basket of international crude (Brent, Dubai and Cinta) changes more than 4 percent over a period of 22 working days.

China's latest fuel price adjustment was on June 30, when prices of gasoline and diesel both went up by 600 yuan per ton, or nearly 9 and 10 percent respectively. At that time the international crude prices were around $70 per barrel.

"As per our calculation, if the price of international crude were below $64 per barrel at the end of this month, the 4-percent condition is satisfied," said Zhong with Changjiang Securities.

After China raised fuel prices three times this year, the price of 93-octane gasoline in Beijing is 6.37 yuan per liter, the highest level in history.

Lots of consumers have termed the fuel price as being too high and unaffordable. Some experts echo their opinions.

"The government reduced gasoline price once last year, though we all know that last year international crude prices were low in the second half. I cannot understand that," said a taxi driver surnamed Li.

"Now the gasoline price is almost the same with that of last July, when international crude prices were at the highest level. How can we say that domestic fuel prices reflect the international prices well," said an expert who asked not to be named.

Some service stations in the country also did their own price cuts in July. For instance, stations jointly run by Sinochem Group and French oil company Total in Beijing started a price cut of its 93-octane gasoline this month. The price is 6.17 yuan per liter, 0.2 yuan cheaper.

Another foreign oil giant Royal Dutch Shell, which owns service stations in Beijing, also did price cuts for its 93-octane oil. The discount ranges between 0.15 yuan to 0.2 yuan per liter.

However, the National Development and Reform Commission (NDRC), the country's top economic planning body, on July 15 defended its recent oil price adjustment and rejected complaints about frequent rises and rate cuts.

This year, international oil prices have jumped 70 percent. Chinese retail prices have increased by only a quarter after three adjustments, said the NDRC.

Comparing domestic oil price with overseas prices, the NDRC said that the tax-inclusive price of 93-octane gasoline in Beijing is now 6.37 yuan per liter, while in Washington, New York and California, the price is 5.21 yuan, 5.18 yuan, and 5.41 yuan per liter respectively nowadays.

In Beijing, the tax-free price is 4.25 yuan per liter, and in Washington, New York and California it is around 4.75 yuan, 4.20 yuan and 4.41 yuan per liter.

The current price level and tax level of gasoline prices underline China's efforts in energy conservation, said the NDRC.

Source:China Daily

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