China Cuts Gasoline Prices for First Time This Year as Oil Costs Plunge

By Bloomberg News - Oct 9, 2011 8:43 AM GMT+0700

China cut fuel prices for the first time this year after crude oil costs plunged as the global economy slowed.

Ex-factory gasoline was reduced by 300 yuan ($47.20) a metric ton, or 3.5 percent, starting today, and diesel was also lowered by 300 yuan, or 3.9 percent, the National Development and Reform Commission, the nation’s top economic planner, said in a statement on its website yesterday. The upper limit for retail gasoline dropped as much as 3.3 percent and diesel by 3.6 percent.

Oil traded in New York fell about 24 percent since China last adjusted prices on April 6, while Brent crude, the benchmark for about half the world’s oil, slid 13 percent. China last reduced oil-product prices in June 2010 and has increased them four times, by about 20 percent, since then.

“China hadn’t raised fuel prices enough when crude climbed to records in late-April and early May, amid concerns of inflation,” and this delayed any move to cut prices before now, the NDRC said in a separate statement on its website, citing comments from an official it didn’t identify.

China adjusts gasoline, diesel and kerosene rates when the moving average of three crude grades comprising Brent, Dubai and Cinta changes more than 4 percent over 22 working days. The government may increase the frequency of fuel price adjustments and change the global crude price benchmarks it monitors, the NDRC said yesterday, without being specific.

“China is unlikely to cut fuel prices further should the crude prices stay at the current levels,” Yin Xiaodong, the chief oil analyst at Beijing-based Citic Securities Co., said today by phone.

Containing Inflation

Lower fuel prices may help the country contain inflation. Consumer price growth eased from a three-year high to 6.2 percent in August, while industrial output slowed for a second month, giving policy makers more room to pause on monetary tightening as the economy cools and a global slowdown threatens exports and jobs.

Chinese refiners will still face losses after the cut and the government has told oil companies to ensure supply, the planning agency said. China Petroleum & Chemical Corp. (386) and PetroChina Co. are the country’s largest refiners.

China is cutting fuel prices as tightness in domestic fuel supply eases. The government reduced fuel-oil import tariffs in July. It also pressured privately held refineries to increase processing, the official Xinhua News Agency said on Aug. 8, citing an unidentified NDRC official.

To contact the editor responsible for this story: Paul Gordon at pgordon6@bloomberg.net