China reduces fuel prices to cushion the impact of rising oil costs
China took measures to cushion the impact of fuel price increases on Monday, increasing the retail gas and diesel ceiling prices but keeping the increase to half the amount that would be charged under the government pricing mechanism. The price adjustments prompted by the U.S. and Israeli war against Iran are still the biggest ever. They have lifted the price limits to levels similar to those seen in 2022, after Russia invaded Ukraine.
The National Development and Reform Commission, the state planner, announced on Monday that it would increase the maximum retail price for gasoline and diesel, respectively, by 1,160 Yuan ($168) and 1,115 Yuan per metric tonne, effective at midnight of the same day.
The NDRC reviews gasoline and diesel retail prices every 10 days, applying adjustments that reflect changes in crude oil prices internationally, while taking into consideration average processing costs and taxes, as well as distribution expenses and profit margins.
According to NDRC, under the current pricing system, gasoline and diesel would have increased by 2,205 yuan (about 2.120 yuan) per metric tonne, and respectively.
In an announcement, the state planner stated that temporary price controls were introduced to "cushion the impact and ease the burden on downstream users" as well as support economic 'and social stability".
The latest adjustment, if fully implemented, would cost an average private car owner approximately $6.5 extra to fill a tank of 50 litres of 92-octane gas.
Sinopec sent a text message to customers on Sunday night to inform them that fuel prices will increase significantly at midnight on January 1st. They were also reminded to fill up outside of peak hours.
According to Rednote and Weibo posts, Sunday night drivers queued up at gas stations across the country, anticipating a price hike.
Rednote user from Shanghai posted a picture of a long queue at a PetroChina gas station. "Drivers are advised to switch to electric vehicles as charging costs less than 50 cents a kWh after 10pm," he said. Analysts believe that a 10% increase in oil prices could boost?Chinese producer inflation by 0.4 percentage point.
Shuang Ding is the chief China economist for Standard Chartered Bank. He said that a cost-driven inflation was bad because it could squeeze?corporate profit.
According to Chinese consultancy GL Consulting, the government's intervention may limit refiners’ price increases. However, high oil prices can still affect consumer demand by preventing costs from being passed along and possibly deepening their refining losses.
Oilchem reported that the soaring crude prices and low demand in 'Shandong have caused independent refiners to lose 122 yuan a ton on 'March 20'. Shandong has the most small-scale refineries in China. GL Consulting reported that the combination of high operating rates and low demand for fuel products combined with an earlier export ban had pushed gasoline inventories and diesel inventories temporarily to high levels.
(source: Reuters)
