China hikes fuel prices

Beijing raises prices for gasoline by as much as 18% in bid to cool demand.

BEIJING (AP) -- China raised prices for fuel by as much as 18% on Friday in a move that could cool the nation's surging energy consumption.

International oil prices dropped sharply Thursday after China said it will raise fuel prices, with U.S. crude for July delivery falling $4.75 to settle at $131.93 a barrel on the New York Mercantile Exchange. In Asian trading, oil was up slightly at $132.01 a barrel.

Growing Chinese demand for oil has underpinned the multiyear rally in oil prices, but higher prices could help crimp that demand. Concerns about spiking Chinese demand for diesel due to cleanup operations in the aftermath of last month's earthquake contributed to oil's recent run-up.

Lower demand in China "would be a major factor in driving prices down," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.

The China Daily newspaper reported Friday that the increase was "because of the soaring price of crude in the international market." It said areas in Sichuan province, hit by a massive earthquake last month, were exempt from the increase.

The price increase was announced issued late Thursday after China's financial markets were disclosed by the National Development and Reform Commission, the government's main economic planning agency announced.

Prices of gasoline and diesel rose by $145 per ton to $1,015 and $949, respectively.

Aviation kerosene rose by $218 per ton to $1,084, the commission said on its Web site.

Electricity prices will also rise for most businesses by 36 cents per kilowatt, although residential housing and the farming and fertilizer industries would be exempt, the planning agency said.

Natural gas and liquefied petroleum gas prices will remain unchanged, it said.

The government last hiked fuel prices by about 11% in November but had kept them frozen since, seeking to avoid fanning inflation, which has touched 12-year highs since the beginning of the year.

That policy, however, has led to shortages at the pump as refiners find themselves squeezed by rising world oil and gas prices.

To help counter such shortages, China's largest city, Shanghai, on Monday announced an increase in prices for liquefied petroleum gas used by scooters.

Earlier this week, the economic planning agency said it would look for an opportunity to adjust oil product prices, prompting a rally in shares of major refiners that have been swallowing huge losses due to soaring crude oil prices.

In an explanatory note accompanying its announcement, the commission said high world oil prices had created "contradictions in the purchasing price of oil being higher than the selling price of refined products that were becoming more glaring by the day."

That had led some refiners to halt or suspend production, creating supply interruptions and long lines at some filling stations, it said.

Coal prices that have risen $12 in the past two years have created massive losses for four of the country's five major power producers, it said.

Along with the electricity price rise, the government will also continue to provide subsidies to the industry to guarantee supplies, the commission said. To top of page
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