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Retail fuel prices jump for the first time this year

By Du Juan  (China Daily)

09:16, February 25, 2013

Retail gasoline and diesel prices were raised on Sunday for the first time this year on the back of the country's economic rebound, which will lead to an increase of February's consumer price index, experts said.

Retail gasoline prices jumped by 300 yuan ($50) a metric ton, or 0.22 yuan a liter and diesel prices increased by 290 yuan a ton, or 0.25 yuan a liter from Monday, the National Development and Reform Commission, the nation's top economic planner, has announced.

The price adjustment, which is within the expectations of the market, will raise the gasoline retail price to more than 8 yuan a liter again in Beijing.

"As the major material for transportation, the price rise will result in higher costs for operations in key industries including agriculture, forestry and fisheries and eventually lead to the CPI climb this month," said Han Jingyuan, an analyst at the oil department of JYD Online, a bulk commodity consultancy in Beijing.

International crude oil prices have been rising since the beginning of the year. By Feb 18, the Brent oil price, one of the prices that China refers to for fuel price adjustments, had increased by 5.45 percent compared with the beginning of January.

During China's lunar New Year, earlier this month, the Brent crude prices reached $118 a barrel, a record high in nine months, which led to the growth of average movement of the three reference markets, namely Brent, Dubai and Cinta's oil prices.

China's current mechanism allows the government to adjust fuel prices if the average movement changes by 4 percent.

The last fuel price rise was on Nov 16. By Friday, the average change reached 5.17 percent, according to SunSirs Commodity Data Group, a bulk commodity information provider in China.

"At present, the major countries adopt easy monetary policies to stimulate the economy, which has boosted the oil price rise," said Li Hong, an analyst at SunSirs. "The high oil price will hurt investor expectations of the economic rebound. It is difficult to predict whether retail fuel prices will continue to rise in March or not."

Prompted by weak domestic demand in recent months, the fuel inventories in refineries are high, and are sufficient for market supply. Although the busy season for diesel consumption is approaching, the shortage is not likely to happen, according to SunSirs.

Li said the price rise will be beneficial for the country's two top refiners, Sinopec Group and PetroChina. It will also provide profit opportunities for local refineries.

As China is strengthening its reform of the energy industry, many industrial insiders and experts believe the new fuel pricing mechanism plan may be launched this year.

"All the price adjustments in the last year were largely based on the international oil price change. It is certain that the fuel price adjustments will eventually become the norm," said Li.

Zhou Dadi, former director of the NDRC's energy research institute, said in a previous interview with China Daily that the current pricing mechanism remains complex and not nimble enough to reflect global crude oil prices.

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