China Fuel Prices Rise Second Time in Month as Oil Gains

China, the world’s second-biggest oil consumer, increased gasoline and diesel prices for the second time in about a month as rising crude costs threaten to curb profits at the nation’s largest oil refiners.

The maximum at which gasoline can be sold to motorists rose by 550 yuan ($87) a metric ton and diesel by 540 yuan today, the National Development and Reform Commission said in a statement on its website yesterday. The pump price of 90-RON, China III gasoline in Beijing will increase 5.8 percent to 10,040 yuan a ton, or $4.53 a U.S. gallon, according to Bloomberg calculations from NDRC data. The China III specification is similar to the Euro III fuel standard.

The increase may help boost profits margins at China Petroleum & Chemical Corp. (386) and PetroChina Co. (857), the nation’s biggest oil processors. Sinopec, as China Petroleum is known, posted its lowest half-yearly profit since 2008 amid losses at its refining unit because of state-controlled fuel prices. PetroChina’s net income in the period slid 6 percent even as its average crude selling price increased 6.3 percent.

“At these fuel price levels, we believe that most Chinese refiners still are unlikely to break even owing to higher feedstock costs from the current oil price environment,” Barclays Plc said in a report e-mailed today. “Although the gap to profitability is getting closer and we estimate a further price hike” of as much as 300 yuan a ton for gasoline and diesel.

Moving Average

Gasoline and diesel prices are set by the NDRC under a system that tracks the 22-day moving average of a basket of crudes comprising Brent, Dubai and Indonesia’s Cinta. The government may adjust fuel rates when the measure changes more than 4 percent from the last adjustment. The price of Brent futures in London rose 9.2 percent in August and traded at $114.15 a barrel on Sept. 10. Prices last increased on Aug. 10.

“Crude prices gained in the past month due to better U.S. economic indicators, continuing uncertainty in the Middle East and expectation on more stimulus policies from the U.S. and Europe,” the NDRC said in the statement yesterday.

Sinopec posted a loss of 18.5 billion yuan from processing 811 million barrels of oil in the first half of the year, the company said in a stock-exchange filing on Aug. 26. PetroChina incurred a loss of 23.3 billion yuan from refining 489.7 million barrels, it said in an Aug. 23 filing.

The NDRC has indicated that it may change the pricing system for refined products in the second half of the year, Zhou Jiping, PetroChina’s president, said after the earnings release. The revisions are expected to reduce PetroChina’s refining loss and boost earnings, he said.

New System

China will let oil companies set fuel prices according to guideline rates posted by the government as part of planned reforms, 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 Sinopec, said in its online newsletter March 28.

Sinopec opened 1.4 percent lower at HK$6.98 in Hong Kong, and PetroChina 1.2 percent down at HK$9.26. The benchmark Hang Seng index fell 0.35 percent.

To contact Bloomberg News staff for this story: Jing Yang in Shanghai at jyang251@bloomberg.net

To contact the editor responsible for this story: Mike Anderson at manderson34@bloomberg.net

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