China to cut fuel prices, likely by 3 percent
Written on September 30, 2009
China will cut retail fuel prices on Wednesday or Thursday, two sources close to the matter told Reuters, by an estimated 3 percent from near-record highs to track falling global crude prices.
The first cut in two months, coming just ahead of the week-long National Day holiday, may encourage more motorists to hit the roads, further boosting fuel demand after five months of rising consumption in the world’s No.2 oil user.
But the frequent nature and small scale recent price changes means their impact has been limited.
“I dont expect any obvious impact on demand or consumption because the estimated change is small,” said an oil analyst with a Shanghai-based securities firm who declined to be identified.
“Frequent changes mean none of them are big or have a very big effect.”
The sources did not give a range for the price reduction, but industry players predicted a modest 150-200 yuan per tonne cut, in line with the previous two cuts this year and offsetting half or more of a September 2 price increase of 300 yuan.
“Theoretically, the cut should be around 300 yuan per tonne, in line with the change in global crude costs,” said Mo Sihong, vice chairman of the Guangdong Petroleum Industry Association.
“But given that the government always leaves some room when either raising or cutting prices, I think the cut this time will absolutely not exceed 200 yuan per tonne.”
Benchmark crude prices, the base for Chinese retail gasoline and diesel prices, have dropped by more than 5 percent since Beijing’s last price hike on September 2, according to CBI China, an industry website that closely tracks China’s fuel price moves.
A 150-200 yuan cut would bring Chinese retail gasoline prices down to around 7,410-7,460 yuan a tonne, equivalent to $3.04-$3.06 a gallon, well ahead of the $2.50 a gallon paid by U.S. drivers.
Under a price system in effect since January, China has said it might adjust gasoline and diesel prices when the 22-day moving average of a basket of global crude prices shifts more than 4 percent, but will also take into account other factors such as domestic demand and supply.
“My calculation shows the moving average has fallen over 8 percent (from end August) to today,” said an analyst with an international oil firm based in Shanghai. U.S. light crude last stood at $66.86 a barrel on Tuesday.
The market-based fuel price scheme offers fixed profit margins when crude is under $80 a barrel for refiners Sinopec Corp and PetroChina, a shift from previous policies that often kept prices artificially low and hit refiners particularly hard when crude rose to near $150 last year.
The cost-plus fuel mechanism has bolstered refining margins at Chinese refiners significantly. Top Asian refiner Sinopec Corp reported record second-quarter profits and a 333 percent surge in first-half earnings.
China on September 2 raised gasoline and diesel prices 4-5 percent to near record highs, the fourth hike this year.
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