New oil pricing mechanism drafted

09:33, September 02, 2010      

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Crude oil prices fell nearly one month, standing under $75 per barrel Tuesday, while China still kept the retail price unchanged.

Crude prices have dropped since the August 3 peak of $82.89 per barrel.

In 2009, the National Development and Reform Commission (NDRC) adopted an oil pricing mechanism that adjusts prices when the moving average of a basket of international crude (Brent, Dubai and Cinta) changes more than 4 percent over 22 working days.

Critics doubted the effectiveness and the transparency of the oil pricing mechanism, saying that domestic oil prices continue to rise while international oil prices are dropping.

"The growth rate of refined oil prices in the domestic market is smaller than that of global crude oil prices," the NDRC rebutted the criticism in a recent statement. But it cannot quiet down calls for a new mechanism that can better reflect prices at the open market.

"China has drafted a new oil pricing mechanism that will be more sensitive to international price volatility," said an engineer with China National Petroleum Corporation (CNPC), who only provided her family name Wei.

"The current mechanism is not welcomed by refiners and consumers."

Lin Boqiang, director of China Center for Energy Economics Research at Xiamen University of East China's Fujian Province, said "the current 22- day system could possibly be improved to 14 days this year, and it could then be shortened to within 10 days."

Many international investors said oil demand growth rates in China will continue to rise in the coming months.

Deutsche Bank predicted the full year average demand growth will climb to 9 percent compared to last year.

The sales of private vehicles is expected to rise, which could push up the international crude prices, thereby affecting domestic prices.

Source: Global Times


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