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Fuel prices move closer to reduction

By Qiu Chen (Global Times)

08:22, September 24, 2012

The National Development and Reform Commission (NDRC), the country's top economic planning body, may cut ex-factory prices on fuel oils as early as mid-October, analysts told the Global Times Sunday.

The average on a basket of international crude oil commodities - including Brent, Dubai and Cinta - had been falling in recent days compared to September 10, the last time the NDRC announced that it would adjust fuel oil prices, setting a new benchmark. As of Thursday, the basket tracked by the NDRC was 0.11 percent below September 10 levels; while by Saturday the rate had sank to 0.32 percent, according to data from 315.com.cn, a commodities information provider.

If global oil prices continue to decline at their present rate, it is expected that average prices will drop 3.5 percent by October 9, 22 working days after September 10, and will drop by 4 percent around October 15, opening the door for the NDRC to adjust prices, Xie Qiuting, analyst from 315.com.cn, told the Global Times. Under China's current oil pricing mechanism, the NDRC can consider adjusting domestic gasoline and diesel prices when international crude oil prices fluctuate over 4 percent during a period of at least 22 working days.

International crude oil prices are not expected to go up again in the near term after shooting up to four month highs following the US Federal Reserve's announcement on September 13 that it would roll out a third round of quantitative easing, Li Zhoulei, a crude analyst from Shanghai Cifco Futures, told the Global Times. "It is more likely that international crude prices will go down in the future as demand remains week," Li said.

Nevertheless, Li cautioned that it is still too early to say for certain whether global crude prices will fall by 4 percent or more in the coming four weeks, as inflationary pressures caused by the easing policies of some countries persist.

Once the window opens for the NDRC to cut refined oil prices, downward adjustments will be made in a timely manner as the government does not have to worry about inflation and customer affordability when it comes to cutting fuel prices, considerations which usually lead planners to delay price hikes, according to Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University.

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