March 26, 2013
Translated by Liu Jingyue and Pang Lei

The National Development and Reform Commission (NDRC) announced yesterday afternoon that as of midnight on Mar 26, the retail price of fuel would be reduced in China.The price of gasoline will be reduced by 0.23 yuan a liter and diesel by 0.26 yuan per liter.

Almost at the same time as the announcement of the adjustment to fuel prices, Xinhua News Agency published a new flash revealing details of a new fuel-pricing system that will tie domestic Chinese fuel prices more closely to fluctuations in the international price of crude oil.

The report said that the new method for calculating whether China's domestic gasoline and diesel prices should rise of fall will be based on fluctuations over a 10 working-day period rather than the current 22 working-day time frame. The flash also cited the NDRC as saying that the existing provision that international prices have to change by more than 4 percent over that period in order for a price adjustment to be considered, will also be cancelled.

The new pricing mechanism has been anticipated for some time and the EO reported two weeks ago that the government was now simply waiting for the international price of oil to fall before announcing the introduction of the new system.

The EO also reported that the new system would shorten the adjustment period to 10 days and remove the 4 percent fluctuation threshold.

According to the current fuel-pricing mechanism which was introduced in 2009, the NDRC will only consider adjusting prices if the 22-day moving average of three international crude grades changes by more than 4 percent.

The three international crude prices monitored by the NDRC are Indonesia's Cinta, Brent and Dubai.

Oil companies like China Petrochemical Corporation (Sinopec) and China National Petroleum Corporation (CNPC) are likely to be the winners from the introduction of this new system.

CNPC suffered a loss of over 30 billion yuan in the refining process in the first three quarters in 2012. Sinopec reportedly lost 16.4 billion yuan. The new pricing system aims to mitigate these losses.

Links and Sources
Xinhua News Agency: 发改委：新版成品油定价周期缩短至10个工作日
Xinhua News Agency: 汽柴油27日起小幅降价
Economic Observer Online: New Fuel-Pricing System Waiting for Right Time to Begin