China to Cut Fuel Prices by the Most Since 2008, C1 Says - Bloomberg

By Bloomberg News - 2012-06-08T10:21:58Z

China, the world’s second-biggest oil user, will reduce gasoline and diesel prices by the most since 2008 after global crude costs slumped.

State-controlled retail gasoline prices will fall by 530 yuan ($83) a metric ton starting tomorrow and diesel will be cut by 510 yuan, the National Development and Reform Commission, the nation’s top economic planner, said on its website today. The cut is the steepest since the government’s current pricing system was introduced in December 2008.

A drop in fuel prices threatens to reduce revenue at China Petroleum & Chemical Corp. (600028) and PetroChina Co. (857), the nation’s biggest refiners, offsetting cheaper crude costs and extending processing losses that widened last quarter. Brent oil in London, a benchmark grade tracked by China’s government, entered a so-called bear market on June 1 after sliding more than 20 percent from this year’s high.

“Margins at the refiners are looking quite bad for the second quarter,” according to Shi Yan, a Shanghai-based analyst at UOB-Kay Hian Ltd., who was expecting prices to be lowered by 600 yuan a ton. “The government may want to help trim refiners’ oil processing losses,” she said, referring to the less than expected reduction.

China Petroleum, or Sinopec, had a 16-fold increase in its first-quarter refining loss to 9.2 billion yuan compared with a year earlier, the company said April 26. PetroChina said its operating loss from processing widened to 10.4 billion yuan in the three months from 6.1 billion yuan a year earlier.

Not Reflecting

A decrease of 530 yuan a ton, or 24 cents a gallon, wouldn’t fully reflect the decline in crude, according to calculations by C1 Energy, a Shanghai-based commodity researcher. It correctly reported the fuel-price changes on its website today before official announcements. Prices should fall by as much as 620 yuan under government rules, it said.

The cut is equivalent to a 5.5 percent drop in average retail gasoline prices, based on government data. Futures of Brent crude fell 13 percent to $98.35 a barrel as of 10:44 a.m. in London compared with the close on May 10, when Chinese fuel prices were last adjusted.

The maximum price for 90-RON, Euro III-equivalent gasoline at the pump in Beijing will fall to 9,520 yuan a ton, or $4.27 a gallon, data from the NDRC show.

Fuel Pricing

Sinopec rose 0.7 percent to HK$7.07 in Hong Kong today, while PetroChina gained 0.8 percent to HK$10.12. The benchmark Hang Seng index fell 0.9 percent.

The NDRC considers adjusting fuel rates when the 22-day moving average of Brent, Dubai and Indonesia’s Cinta crude changes more than 4 percent from the previous revision. Today is the 22nd working day after the last adjustment on May 10, the official Xinhua News Agency said June 6.

The nation has a plan to revise its fuel-pricing mechanism and is waiting for an “appropriate time” to implement it, Zhou Wangjun, deputy director of the pricing department at the NDRC, said in a webcast by Xinhua April 26. The system will be implemented when oil prices are “relatively low,” Zhou said.

China will let oil companies set fuel prices according to guideline rates posted by the government as part of planned changes, Xinhua reported March 28, citing Peng Sen, a former vice chairman at the NDRC. The new system may also shorten the pricing cycle to 10 days from 22 days and replace Indonesia’s Cinta with New York-traded West Texas Intermediate oil, China Petrochemical Corp., the parent company of China Petroleum, said in its online newsletter March 28.

To contact Bloomberg News staff for this story: Chua Baizhen in Beijing at bchua14@bloomberg.net; Jing Yang in Shanghai at jyang251@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net