China's price regulator said Wednesday that it would not change domestic oil prices Thursday, its first scheduled price announcement since it launched a new gasoline pricing mechanism on March 27 that may create a significant challenge for oil traders in the country.
The National Development and Reform Commission (NDRC) said in a meeting that average international gasoline prices over the past 10 working days had remained basically unchanged since the previous price adjustment on March 27.
Starting March 27, domestic oil prices are adjusted every 10 working days, rather than the previous 22 working days, according to the new pricing mechanism announced by the NDRC. The new mechanism also canceled a previous criterion requiring international prices to change by more than 4 percent before a domestic adjustment could be made.
The NDRC said that oil prices will now be adjusted more frequently and in smaller increments, so price hikes of up to 1 yuan per liter of oil will become a thing of the past, putting an end to drivers lining up at gas stations before price increases.
As oil pricing becomes more market-oriented, it presents a challenge for oil traders who benefited from speculation on the gasoline market, and some may need to make changes or even give up the business, analysts said.
China has seen a declining number of big deals for oil products since March 27 as a result of sluggish domestic demand for gasoline and a more cautious attitude on the part of oil traders who see speculation as riskier, Li Li, a senior analyst at research agency ICIS C1 Energy, said Wednesday.
"The new mechanism leaves little room for speculation by oil traders, who earn profits mainly by buying low and selling high, since the shortened price adjustment cycle forces them to trade oil products more quickly and the smaller price adjustments reduce their profits," Li said.
A report released by Zibo Zhongyu Information Technology Co Tuesday showed that oil traders were pessimistic about the future market and less motivated to make trades.
Traders will speed up their trading and shift from big deals to smaller ones based on demand, Wang Jintao, chief analyst at Zibo Zhongyu, told the Global Times Wednesday.
Shanghai Puming Petrochemical Ltd said it needs to shorten its trade cycle to no more than 10 days from the previous two weeks.
A reshuffling of the sector is expected, Wang said, noting that small-scale private traders who are bad at judging short-term international gasoline price trends will be forced out of the market.
There are more than 2,600 oil traders in China, media reports said.
However, the new mechanism will benefit oil producers as retail prices will better reflect market changes and reduce refining losses, Wang said.
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