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Cut in fuel prices expected

By Liang Fei (Global Times)

08:02, June 26, 2012

The National Development and Reform Commission (NDRC) is likely to cut retail gasoline and diesel prices for the third time this year in July, analysts said yesterday, given that international oil prices have dropped more than 5 percent since the last price adjustment earlier this month.

"International oil prices have declined by 5.57 percent since the last price cut, and the NDRC is likely to adjust retail domestic oil product prices on July 11," Wang Jintao, an oil industry analyst at commodity information provider Zibo Zhongyu Information Technology Co, told the Global Times yesterday.

Under the current pricing mechanism for oil products, the NDRC adjusts gasoline and diesel prices when the average of a basket of crude oil prices - Brent, Dubai and Cinta - changes by 4 percent over 22 working days. July 11 will be the 22nd working day after the last price cut on June 9.

The NDRC has cut oil prices twice this year. In May, it lowered prices by just over 300 yuan ($47.08) per ton, and on June 9 it cut prices by more than 500 yuan per ton, the biggest cut in almost three years.

Currently the price of the three benchmark crudes is at some $90 per barrel, a 20 percent drop from the price in March. Wang said that oil prices are not likely to rebound within the next few weeks.

An increase in US oil supplies and the ongoing European debt crisis have been major reasons behind the sharp drop in oil prices since April, according to Wang. But he also noted that the oil price is low and is not likely to fall any further this year.

"International oil prices are expected to show a moderate rebound in the third quarter, by $10-15 per barrel," said Wang.

Due to the sharp drop in international oil prices, domestic wholesale prices for oil products have also declined during the past two weeks, according to Huang Shunjing, vice president of oil industry portal oilboss.cn. With the retail price unchanged, Huang told the Global Times that most gas stations have cut prices to increase sales.

The price of 92-octane gasoline is now 7.2 yuan per liter in some gas stations in Beijing, compared with a price of 8 yuan in March.

Wang said that the airline fuel surcharge is also expected to see a 10-30 yuan drop in July.

Experts noted that it would be a good time for the NDRC to launch a new pricing mechanism for domestic oil products, given the steady decline in international oil prices.

The current mechanism has been accused of lagging behind international changes. Media reports said that the NDRC would launch a new pricing mechanism within the year, which will shorten the periods between price adjustments to 10 working days and lower the 4 percent threshold.

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