China will raise retail fuel prices by about 4-5 percent from Wednesday to a near-record high to track a basket of global crude prices that moved up nearly 10 percent.
China will raise retail fuel prices by about 4-5 percent from Wednesday to a near-record high to track a basket of global crude prices that moved up nearly 10 percent since Beijing"s last price change just over a month ago. The increase in retail prices for gasoline and diesel by 300 yuan a tonne was announced by an official from the National Development and Reform Commission on state television and marks the fourth hike this year.
The rise, a surprise to many in the markets who had been expecting Beijing to hold off until after the National Day holiday on Oct 1, shows that the government is serious about sticking to its market-based fuel pricing system that closely tracks global crude costs.
The increase was at the lower end of an earlier forecast for a hike of 6-8 percent, as global crude fell almost 4 percent on Monday before climbing back to near $70.40 a barrel on Tuesday.
The share price of top state refiner Sinopec Corp fell by the daily limit of 10 percent in Shanghai on Monday after a media report that China might reduce the frequency of oil price changes.
?I suspect more increases are needed in October given the higher cost of crude oil to be shipped in by then,? said Qiu Xiaofeng, an analyst with China Merchants Securities.
After the rise, China"s average retail price for 90-octane gasoline stood at about $3.12 a gallon, some 19.5 percent above average pump prices for U.S. regular unleaded motor fuel.
Xu Kunlin, a senior official in charge of oil pricing at the NDRC, a powerful central planning agency, told state television that China had already postponed the rise by one week because it must look at more than just global oil prices.
?The domestic economy, market demand and supply and some other factors also require consideration,? he said.
China also raised jet fuel prices by 300 yuan per tonne.
High production, high stocks to persist
Analysts say that the rise, the first since July 29, will further shore up profit margins for state refiners and prompt them to produce at high rates despite increasing stocks.
Refined fuel stocks held by China"s top two oil firms rose 7.5 percent in July, the third monthly rise in a row, as sales declined for the first time since at least February while refiners increased their output to a record high of 7.8 million barrels per day in the month.
?Oil firms" enthusiasm is not dampened by the weak domestic sales. Instead, they are encouraged to produce at a robust rate thanks to the price rise and they can export their extra production,? a state refining official said.
No.1 refiner Sinopec Corp last week reported record first-half earnings that were more than four-times higher than year-ago levels alongside a hefty $8.6 per barrel margin.
?High production will also keep China"s apparent oil demand at a high level,? the official added.
Stripping out changes in stocks, China"s implied oil demand rose 3.5 percent in July from a year earlier, the fourth consecutive rise.
Under a price system since Jan. 2009, the Chinese government has said it may adjust gasoline and diesel prices when the moving average of global crude sways more than 4 percent.
The government has said that the prices it sets operate only as guidance and that oil firms can set their own prices, provided that they do not exceed the government"s ceiling.