China to cut fuel prices by 3% from record highs

Monday, 10 October 2011 00:00 - - {{hitsCtrl.values.hits}}

Reuters: China will cut retail ceiling prices for gasoline and diesel by about 3 percent from Sunday, taking prices off record highs at a time when headline inflation eased from a three-year peak.

The National Development & Reform Commission (NDRC), the country's macro policy maker said the price cut, at 300 yuan per ($47) per tonne, was triggered as global crude prices fell under a current fuel pricing mechanism.

"The price cut will help lower the operational cost of the society, ease the upward pressure of overall price levels and is conducive to the steady and relatively fast growth of the economy," the NDRC said in a statement posted on its website www.ndrc.gov.cn.

The modest price cut, much expected by the market, came six months after the previous price change in early April when the government lifted prices by around 5 percent to record highs. It may help lift fuel demand in the world's second-largest oil user, which appears on track to deliver annual growth of around 6 percent this year, half its pace in 2010 but still leading the world.

The International Energy Agency last month pegged China's oil demand growth at 527,000 barrels per day this year, contributing more than half of the world's incremental demand. The price cut, announced the first day government offices returned from a seven-day national holiday, came after China's inflation pulled back to 6.2 percent in August from a three-year high of 6.5 percent in July and is widely expected to cool steadily for the rest of the year.

China sets its retail fuel levels by tracking the prices of a basket of international crudes over a 22-working-day cycle. A price change is usually triggered when global oil prices move beyond a 4-percent range during this period.

According to C1 Energy, which closely tracks the basket of crudes -- Dubai, Brent and Cinta -- global oil had fallen 4.09 percent during the 22-day cycle by Oct 7.

Since the fuel scheme started in January 2009, NDRC said it has raised retail fuel prices by about 50 percent, lagging the over 70-percent rally in the basket of crude prices, as it had to take into account of domestic economic situations which have been under inflationary pressure most of this year.

The commission, which also sets China's natural gas and electricity prices, said it is in the middle of revamping the fuel system to even better reflect market cost, by possibly making the price changes more frequent.

It could also change the basket of crudes benchmarked.

It added that despite the falling global crude markets, the price cut would leave the refining departments of state-run oil firm Sinopec Corp 0386 and PetroChina 0857 in the red.