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China cuts fuel prices for first time in 2012

(Xinhua)

09:03, May 10, 2012

A staff member refuels for a vehicle at a gas station in Jiangbei District of Chongqing, southwest China, May 9, 2012. China will lower the per-tonne retail prices of gasoline and diesel by 330 yuan (52.38 U.S. dollars) and 310 yuan, respectively, from Thursday, the National Development and Reform Commission (NDRC) announced Wednesday. The move, which marks the first cuts since October of last year, was made in response to lower crude prices on the global market. (Xinhua/Li Jian)

China will lower the per-tonne retail prices of gasoline and diesel by 330 yuan (52.38 U.S. dollars) and 310 yuan, respectively, from Thursday, the National Development and Reform Commission (NDRC) announced Wednesday.

The adjustments will lower the benchmark retail price of gasoline by 0.24 yuan per liter and diesel by 0.26 yuan per liter, the NDRC said in a statement on its website.

The move, which marks the first cut since October last year, was made in response to lower crude prices on the global market. Crude prices kept falling as a weak economic outlook for the eurozone and the United States sparked fears of decline in global oil demand.

On Tuesday, light, sweet crude for June delivery dropped 93 cents, or 0.95 percent, to settle at 97.01 U.S. dollars a barrel on the New York Mercantile Exchange. In London, Brent crude for June delivery also declined and last traded around 112 U.S. dollars a barrel.

NDRC last changed the gasoline and diesel prices on March 20, raising them by 600 yuan per tonne.

Under China's oil product pricing system, introduced in 2009, domestic fuel prices may be adjusted when international crude oil prices change by more than 4 percent over a period of 22 working days.

The fuel price cut will lower domestic transportation costs, which will then help lower vegetable prices and ease inflation pressure, said Han Jingyuan, an industry analyst at www.315.com.cn, a commodity-related information provider.

However, some analysts have argued the help will be quite limited as there are more price rises than cuts.

It has been an irreversible trend for domestic oil prices to gain more frequently than fall in line with international market changes, Han said.

Since the beginning of 2009, the prices of both West Texas Intermediate (WTI) futures, New York's main contract, and Brent crude futures have surged by around 180 percent.

As China's oil prices are linked with global crude market in a controlled manner, changes in the domestic oil market are generally consistent with the global oil market, a NDRC official said in a statement released after the price cut.

The official said real gains in domestic oil product prices have been lower than those calculated by the country's pricing system, as the country has made some caps over the increases.

To dispel the worries of short market supply after the price cut, the official said the country's major oil producers should ease difficulties for their oil refineries and prioritize product structure to ensure supplies.

As for the year's crude price changes, analysts believe that the global market will not see sharp declines if there are no further "geopolitical crises."

The crude price gains this year were mainly caused by the Middle East situations, including production disruption in Libya and Iran's oil cuts over its nuclear program tension.

"I think crude prices will not drop significantly in the following months. They will return to an acceptable level for both producers and consumers," said Wang Zhen, head of the Business Administration College of China University of Petroleum.

Policymakers in the world's second-largest economy are trying to cool inflation while sustaining economic expansion as a deepening debt crisis in Europe and faltering growth in the United States have sapped export demand.

The increase in China's consumer price index (CPI), a main gauge of inflation, eased to 3.6 percent in March from a nearly-three-year high of 6.5 percent in July last year.

The National Bureau of Statistics is scheduled to release April's CPI data on Friday.

Shares of the country's two oil giants dropped hours before the announcement. PetroChina fell 2.01 percent to close at 9.73 yuan per share, and Sinopec declined 1.93 percent to 7.11 yuan.

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