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Relief at the pumps as China cuts fuel prices

By Richard Fu  (Shanghai Daily)

08:15, October 09, 2011

Shanghai--China will cut fuel prices today from record highs to coincide with drops in international crude oil prices and to help tame inflation pressure.

The cut is the first in 16 months and will benefit motorists, airlines and farmers, but hit refiners such as Sinopec Corp and PetroChina Co.

"The fuel price cuts will help lower social costs, alleviate the upward pressure of overall price levels and stimulate economic growth," the National Development and Reform Commission, the top planning agency which sets energy prices, said in a statement yesterday while announcing the adjustments.

The ceiling retail prices for gasoline and diesel were both lowered by 300 yuan (US$47) per ton, according to the commission. That amounts to a 3.2 percent cut in gasoline rates and a 3.5 percent cut for diesel. New prices take effect from today.

At Shanghai pumps, the ceiling retail price for 93-octane gasoline is now 7.55 yuan per liter, down from 7.79 yuan; 97-octane gasoline falls to 8.03 yuan from 8.29 yuan; and zero-grade diesel is now 7.42 yuan, down from 7.67 yuan.

Pump rates vary among regions throughout China.

After the reduction, Chinese refiners will still face losses, the NDRC said, adding it has told oil firms to ensure supplies.

Under the current fuel pricing mechanism, China may adjust fuel prices when the moving average of a basket of international crudes -- which comprise Brent, Dubai and Cinta - changes more than 4 percent over 22 working days. However, the government also takes into account other factors such as inflation concerns.

"The root problem is that such government pricing adjustments always lag," said Lin Boqiang, an energy sector professor with Xiamen University.

China may increase the frequency of price adjustments as part of efforts to revamp the current pricing system, the NDRC said in yesterday's statement.

It did not give a timetable.

The last adjustment took place in early April, when the NDRC raised gasoline and diesel prices by 500 yuan and 400 yuan per ton respectively, sending domestic pump rates to record highs, after global crude prices surged following upheavals in Libya and other North African and Middle East nations. Crude oil prices in New York have fallen about 24 percent since then.

Brent crude fetched about US$99.8 per barrel on October 4, a big drop from US$120 per barrel in late April and early May.

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