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China explains details of new oil pricing mechanism

(Xinhua)
Updated: 2009-05-08 23:27

BEIJING - China's top economic planner Friday announced details of the country's new oil pricing mechanism, for the first time after the new pricing system kicked in at the beginning of this year.

In a statement on its website, the National Development and Reform Commission (NDRC) said China would adjust domestic fuel prices when global crude prices reported a daily fluctuation band of more than 4 percent for 22 working days in a row.

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The commission said refiners would enjoy "normal" profit when global crude prices are below US$80 per barrel, but would face narrower profit margins when the crude prices rise above US$80 per barrel.

However, fuel prices would not go further up, or only be raised by a small margin, when crude prices rise above US$130 per barrel, and fiscal and tax tools would be used to ensure supplies, the NDRC said.

Light, sweet crude for June delivery rose 37 cents a barrel to settle at US$56.71 on the New York Mercantile Exchange Thursday after reaching a six-month high of 58.57 dollars.

Crude prices staged strong rally on news of upbeat economic data in the United States, rising more than 10 percent in two weeks.

The NDRC statement also came a day after it denied an online report claiming imminent price hike.

C1 Energy, an energy information website, Thursday reported that the Chinese government would raise fuel prices as of midnight Thursday, but said later the price adjustment had been canceled, with reasons unknown.

Xu Kunlin, deputy head of NDRC's pricing department, said the new oil pricing mechanism is not to be followed "word by word" without any flexibility, when asked whether the commission would soon adjust fuel prices at a press conference held in Beijing.

"There has been pressure to raise domestic fuel prices as crude prices continued to rise," Xu said, "however, the final decision will depend on developments in crude prices in coming days."

Friday's statement did not say how the global crude prices would be measured.

Xu declined to reveal details on the basket of crude prices for evaluating international price changes, and said such details would remain a secret in a bid to prevent speculation.

The NDRC said in the statement that the government would continue to control fuel prices at the current stage, because of insufficient market competition and imperfect market mechanisms.

However, fuel prices would eventually be determined by market forces only in the long run under the new pricing mechanism, which is aimed to bring in more market forces, said the NDRC.

China's fuel prices, with taxes included, are at a relatively lower level among major oil importers, said the NDRC.

Domestic fuel prices are lower than in Japan, the Republic of Korea, India, Mongolia, and many European countries, but higher than in oil exporters in the Middle East and than some cities in the United States, according to surveys by the NDRC.

China's retail fuel prices vary in different regions. Currently, gasoline 93, the most commonly used type of gas, sells for 5.56 yuan (81.8 US cents) per liter in Beijing.