China May Raise Fuel Prices as Crude Gains Trigger NDRC Formula
February 08, 2012, 6:51 AM ESTBy Bloomberg News
Feb. 2 (Bloomberg) -- China, the world’s second-largest oil user, may raise retail fuel prices for the first time since April following gains in the crude grades the government tracks.
The moving average of Brent, Dubai and Indonesia’s Cinta crudes, the three types in the country’s pricing basket, over the past 22 working days has climbed 4.3 percent as of yesterday, according to C1 Energy, a commodity researcher based in Shanghai. That’s above the 4 percent target that could trigger a fuel adjustment by the National Development and Reform Commission, China’s top economic regulator.
Chinese refiners which processed a record amount of crude oil in December want a price increase to pass on higher costs to end-users. The government controls fuel costs to curb inflation which cooled to a 15-month low of 4.1 percent in December.
“Though the crude basket has risen above the threshold, I think based on past practices, the government will more likely trigger the increase when the moving average price remains above it for some time,” Liao Kaishun, an analyst with C1 Energy, said by telephone from Guangzhou. “In this case, say if Brent crude rises to and stays firmly above $114 a barrel.”
China introduced the pricing mechanism in December 2008 allowing the NDRC to adjust retail fuel levels when the moving average of the crude basket changes more than 4 percent over 22 working days. It didn’t specify the weighting of each crude.
Moving Average
The 22-day moving average of Brent crude has climbed 3.5 percent to $111.46 a barrel from $107.65 on Oct. 7, the day before the last price adjustment by the NDRC, according to data compiled by Bloomberg. Over the same period, Dubai crude has gained about 5.4 percent and Cinta has increased 5.8 percent, the figures showed. Brent traded today as high as $112.05.
The nation cut gasoline and diesel prices by 300 yuan ($48) a ton in October last year to curb inflation, following increases in April and February.
Ex-factory gasoline prices are at 8,280 yuan a ton and diesel is at 7,430 yuan a ton. That puts diesel levels at about 6.2 yuan a liter or about $3.74 a gallon.
China may raise prices as inflation concerns have ebbed, Deutsche Bank AG said in a report yesterday. “Given that China’s inflation appears to be confirmed on a downward trend, we expect that policy makers will feel more comfortable allowing upward fuel price adjustments,” wrote Soozhana Choi, the bank’s Singapore-based head of Asian commodities research.
Retail gasoline and diesel prices may rise 4 percent based on the average change implemented in the past five increases, said Choi in the report. The change would give refiners processing profits 4 percent higher than the last quarter and 10 percent more than a year earlier, Choi calculated.
China may raise retail gasoline and diesel prices 15 percent in five separate increases to about $4.10 a gallon this year, Gordon Kwan, head of energy research at Mirae Asset Securities Ltd. in Hong Kong, said in a December report.
--Editors: Christian Schmollinger, Ryan Woo
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To contact the reporter on this story: Jing Yang in Shanghai at jyang251@bloomberg.net
To contact the editor responsible for this story: Mike Anderson at manderson34@bloomberg.net -0- Feb/01/2012 10:00 GMT
