China raises retail prices of gasoline, diesel

16:33, October 26, 2010      

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The per-ton retail price of gasoline increased by 230 yuan (34.5 U.S. dollars) and diesel by 220 yuan on Oct. 26. Drivers line up to wait for refueling at the Jianguo Road Sinopec gas station of Hangzhou in China.(Source: Xinhua News Agency)

China's top economic planner, the National Development and Reform Commission (NDRC), said on Oct. 25 that it will raise the retail price per ton of gasoline by 230 yuan (34.5 U.S. dollars) and diesel by 220 yuan beginning on Oct. 26.

This is the first fuel price increase in six months after the NDRC raised both gasoline and diesel prices by 320 yuan per ton on April 14 this year.

The Chinese government adopted an oil pricing mechanism at the start of 2009 that allowed the NDRC to adjust retail fuel prices when international crude prices changed by more than 4 percent over 22 straight working days.

The hike is a normal increase under the current pricing mechanism, an unnamed NDRC official said, adding that after the hike, domestic prices are still lower than international prices.

A weakening U.S. dollar drove oil prices to higher than 80 U.S. dollar per barrel in early October.

By Oct. 22, the average crude prices in Brent, Dubai and Cinta markets had risen by 4.14 percent over the past 22 working days, according to data provided by CBI CHINA Co., Ltd., a Shanghai-based commodity information agency.

After the adjustments, the benchmark gasoline price will hit 7,420 yuan per ton, while the diesel price will be 6,680 yuan per ton.

China's consumer inflation rose 3.6 percent in September year on year, a 23-month high. Still, the oil price hike is unlikely to push up inflation as oil prices only account for a small part of the CPI calculation, and the increased margin was still moderate, said Zhou Dadi, a researcher with the NDRC.

An NDRC official in charge of pricing told Xinhua that government-managed departments such as railways have been told not to raise prices, and subsidies will be given to low-income families to cope with the price increase.

However, Zhou expects oil prices, which are influenced by the momentum of global economic recovery, will continue to rise.

Boosted by China's huge demand and speculation that America will begin quantitative easing to increase money supply, JP Morgan Chase has raised its forecast of U.S. crude futures prices to 81 U.S. dollars per barrel in the fourth quarter of this year. It foresees prices will climb to 100 U.S. dollars per barrel in 2011.

"China is expected to have a larger impact on global oil prices with its increasing imports," Zhou said.

Zhou said the current domestic pricing mechanism needed more flexibility, as the adjustment time span of 22 working days created room for speculation, which did little in balancing market demand and supply.

Parts of central China, such as Anhui, Jiangxi and Hunan provinces, experienced diesel shortages in the past months as speculators bet on domestic price hikes after international prices climbed.

Xu Guangjian, a professor with the Renmin University of China, said the government should shorten the adjustment window and ensure that domestic prices keep pace with global prices in order to reduce speculation.

On Monday, the NDRC also said that a new and more transparent pricing mechanism for refined oil products would be announced this year.

Liu Zhenqiu, vice director of the NDRC's price department, made the announcement at a press conference in Beijing, but did not elaborate on the new mechanism.

"Reforms have played an important role in helping boost refiners' production enthusiasm, ensuring market supply and promoting competition," Liu said.

The government will further improve the pricing mechanism of refined oil products to make it more flexible and better reflect changes in supply and demand, he said.

Since the new pricing mechanism took effect at the end of 2008, domestic oil prices have risen seven times and declined five times.

(Source: Contributed by Xinhua)

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