Oil pricing system gets adjustment

Fuel costs to see short-term decline under market-oriented measures

China on Tuesday launched a more market-oriented oil product pricing system to better reflect costs and adapt to fluctuations in global oil prices.

A system introduced in 2009 to adjust prices when Brent, Dubai and Cinta crude oil prices change by more than 4 percent over 22 working days, will be abandoned.

The new system will shorten the adjustment period to 10 days and remove the 4 percent limit, allowing for swifter reaction to increases or cuts in fuel prices, according to the National Development and Reform Commission, China's top economic planner.

The composition of the basket of crudes to which oil prices are linked will also be adjusted.

The 22-working-day cycle has triggered complaints about the pricing system, as it often failed to reflect fluctuations in the international market.

China has also cut gasoline and diesel prices for the first time this year. From Wednesday, the maximum retail prices of regular gasoline and diesel will be cut by 310 yuan ($48.30) and 300 yuan per ton. The benchmark retail price of gasoline will fall by 0.23 yuan per liter and diesel by 0.26 yuan per liter.

After the adjustment, the retail gasoline price will drop to under 7 yuan per liter in most cities including Beijing, Shanghai and Guangzhou.

Operators can determine their own retail prices based on supply and demand and by referencing the regulated prices, according to an official in the commission's price department.

A more market-based pricing mechanism is good for consumers' interests through market competition, said Wen Guifang, an economist at the Institute of Finance and Trade Economics at the Chinese Academy of Social Sciences.

Wen said in the long run, oil prices will continue to rise. As the world's second-largest oil consumer after the United States, China has seen increasing dependence on imported oil, which has threatened its energy security.

That dependence is expected to reach 59.4 percent in 2013, according to a report released by the Economics and Technology Research Institute of China National Petroleum Corp.

Many analysts said the commission has acted quicker than expected.

Zhang Ping, the former chairman of the commission, said this month that China is moving to reform the oil pricing mechanism.

Han Jingyuan, an energy analyst with JYD Online, a bulk commodity consultant based in Beijing, said it is better to launch the new system when oil prices are low.

Crude oil prices on the international market continued to fall in the past few weeks, and the international oil price is likely to keep dropping, she said.

The 22-day moving average price of Brent, Dubai and Cinta on Monday was 5.12 percent lower than the level when China last adjusted fuel prices, said Han.

Eased domestic inflationary pressure also means it is a good time for the commission to launch the new system.

Lu Zhengwei, chief economist with Industrial Bank Co Ltd, said inflation is not an immediate problem and he forecast growth of the Consumer Price Index will continue to fall to about 2.2 percent in March.

The index rose 3.2 percent in February year-on-year. A 10 percent cut in oil prices usually leads to a 0.1 percent fall in the index.

Since February 2011, China has adjusted fuel prices 13 times, with seven increases and six cuts.