China to raise fuel prices first time 10 months

Wednesday, 8 February 2012 01:23 - - {{hitsCtrl.values.hits}}

BEIJING (Reuters): China will raise the ceiling on retail prices for gasoline and diesel by 300 yuan ($47.50) per ton from Wednesday, a senior Sinopec official said, its first fuel price hike in 10 months.

The hike has been anticipated by the industry. Energy consultancy C1 Energy last month flagged a potential price increase, saying that international crude oil prices had risen by more than the trigger level of four per cent.

The move suggests that Beijing may now be more confident of keeping inflation under control.

Policymakers also have indicated in recent comments that price pressures are easing, suggesting inflation is not an urgent priority.

“Demand has weakened during the Chinese New Year holiday period and inventory has climbed, so supply tightness has eased,” said a Sinopec official, who asked not to be identified as he was not authorised to speak to the media.

Following the adjustment, retail gasoline prices will be increased by 3.3 per cent from 9 October levels to 9,380 yuan per tonne. Diesel prices will rise by 3.6 per cent to 8,530 yuan, according to Reuters calculations.

The move to raise prices would improve refining margins for leading oil firms such as Petroleum and Chemical Corp (Sinopec) and PetroChina, which have long struggled with depressed margins.

Refineries run by Sinopec Corp are operating at a loss even though the top Chinese oil company by sales raised ex-factory fuel prices and extended other incentives this year, several refinery officials said.

Political tensions surrounding Iran and the Middle East, along with a severe cold snap across Europe, have lifted oil prices in recent weeks. Front-month Brent touched $ 116.70 per barrel, its highest since early August, on Tuesday.

The National Development and Reform Commission (NDRC) sets fuel prices using a secret formula based on a basket of crude oil prices, including the price of Brent, Dubai and Cinta.

Analysts at C1 Energy have said that Beijing typically starts to consider changing fuel prices if the 22-day moving average of international crude oil prices rises or falls more than four per cent, in addition to giving consideration to other factors such as inflation, fuel supply and demand.

China’s last retail ceiling price change was on 9 October, when the Government cut gasoline and diesel by about three per cent to reflect falls in global crude oil prices.