Translated by Zhu Na
April 8, 2013

On Wednesday, it will be ten working-days since a new mechanism, which ties domestic fuel prices more closely to the price of crude oil on international markets, was introduced in China.

According to the few details of the new pricing system that were revealed, the domestic price will be adjusted every 10 working days and adjustments will no longer be dependent on shifts in international prices exceeding a certain percentage point limit.

Given that the price of crude oil has fallen on global markets over the past few days, it's possible that the price of fuel could be lowered on Apr 10. However, according to some working in the industry, as specific details of the new pricing mechanism have not yet been revealed to the public, it's difficult to predict whether prices will fall or not.

Many in the industry believe that domestic fuel prices won't be lowered due to the limited size of the variations in the price of crude in the international market. According to the new pricing mechanism, when a price adjustment of less than 50 yuan per ton is calcualted, the NDRC will not alter prices.

Wang Jintao (王金涛), an industry analyst with Chem365.net, noted that if the price of crude oil on the international market continues to drop in the next few days, the direction of any change to domestic oil prices during the next window for adjustment might shift from an increase to a decrease, but as the fall in prices is unlikely to be more than 50 yuan per ton, domestic fuel prices probably won't be altered.

Many other industry analysts also believe that domestic fuel prices will not change this time around and that the price adjustment could be delayed to around Apr 25.

New Pricing Mechanism

Xinhua News Agency revealed details of the National Development and Reform Commission's (NDRC) new fuel-pricing system in late March.

The new method for calculating whether China's domestic gasoline and diesel prices should rise or fall will be based on fluctuations over a 10 working-day period rather than the current 22 working-day time frame. The NDRC also said 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 done away with.

Recently, crude oil futures prices in the New York and London markets have fallen. Brent crude oil futures prices for delivery in the London market in May fell for four days, with declines reaching 6 percent; crude oil prices for delivery in the New York market in May have fallen for the past five days, with declines of over four percent.

According to the earlier fuel-pricing mechanism which was introduced in 2009, the NDRC would only consider adjusting prices if the 22-day moving average of three international crude prices changed by more than 4 percent. The three international crude prices monitored by the NDRC were Indonesia's Cinta, Brent and Dubai.

The NDRC has noted that it has made adjustments to the formula for monitoring international oil prices in keeping with changes to the structure of China's oil imports. However, in order to minimise the impact of any attempt to manipulate international market prices, the NDRC has not revealed which international prices it will now monitor as part of the new scheme.

Analysts say that it will take a few cycles for them to get a better understanding of the new system.

Links and Sources
Beijing News: 新定价机制下油价首调或延期
Economic Observer Online: New Fuel Pricing Mechanism Launched
Xinhua News Agency: China shortens oil pricing period