China Keeps Fuel Prices Unchanged in First Review of New System

China, the world’s second-biggest oil consumer, won’t adjust gasoline and diesel prices in the first review under a new mechanism because international crude costs have remained relatively stable.

There will be no change to tariffs because average global crude costs in the past 10 working days were “basically” the same as when China last revised fuel prices, the National Development and Reform Commission said on its website today. The NDRC, the nation’s top economic planner, previously considered an adjustment every 22 working days. The modification signaled this time will be carried over to the next review, it said.

The nation changed the system to better reflect movements in crude costs and reduce speculation, the NDRC said in a statement announcing the measures on March 26, when it also cut prices for the first time in four months. The mechanism may curb processing losses at the nation’s oil companies, according to Sanford C. Bernstein & Co. China Petroleum & Chemical Corp. (386), the nation’s biggest refiner, lost 11.9 billion yuan ($1.9 billion) from processing in 2012, it said March 24. PetroChina Co., the second-largest, lost 43.5 billion yuan, it said March 21.

Today’s adjustment would have been less than 50 yuan a metric ton, the NDRC said today. Under the new rules, China may hold off from a revision if gasoline or diesel is due to rise or fall by less than that amount, or when the country is facing “significant” circumstances such as high inflation or steep increases in international crude prices.

Crude Basket

The NDRC has also changed the composition of the basket of crude grades it monitors, without providing details. Today’s statement referred to Brent and West Texas Intermediate prices, without specifying if they are part of the basket. Under the previous mechanism, introduced in December 2008, the NDRC tracked the 22-working-day moving average of a mix of Brent, Dubai and Indonesia’s Cinta grades. It only considered a price adjustment if the average moved more than 4 percent from the previous change.

Brent, the benchmark price for more than half the world’s oil, has dropped 3 percent since the last fuel-price cut was announced on March 26. WTI has fallen 2.5 percent.

China Petroleum, or Sinopec, slid 0.3 percent to HK$8.83 in Hong Kong today. PetroChina rose 0.2 percent to HK$10.02 and the benchmark Hang Seng Index climbed 0.8 percent. The NDRC’s statement was published just before the market closed, and the decision to leave prices unchanged was reported earlier by Sina.com.cn.

Sinopec’s operating margins at its refining unit may increase to as much as 12 yuan a barrel, compared with a loss of 7 yuan a barrel last year, Bernstein said in a report e-mailed March 26 after the pricing mechanism was revised.

To contact the reporter on this story: Jing Yang in Shanghai at jyang251@bloomberg.net

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

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