China Suspends Fuel Price Cuts to Curb Oil Demand, Pollution

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  • Sinopec shares jump most in seven years, PetroChina rises
  • Pollution worsening, oil consumption rising `too fast': NDRC

China suspended fuel price adjustments as the world’s biggest energy consumer tries to curb demand growth and cut pollution to help improve air quality. Shares of the country’s biggest energy producers surged.

Keeping domestic fuel rates stable, while oil price continue to fall, can help curb petroleum consumption from “increasing too fast," National Development and Reform Commission, the country’s top economic planner, said in a statement dated Dec. 15. Automobile emissions are part of the reason for worsening air pollution, the NDRC said. Gasoline and diesel prices should have been cut by 200 yuan ($31) a metric ton on Tuesday based on its previous mechanism, according to ICIS China, a commodity researcher.

“It seems that the government won’t cut prices until the pollution situation gets improved,” said Wei Wei, an analyst at Huaxi Securities Co. in Shanghai. “Otherwise more people will buy and consume cheaper fuel to add to pollution.”

Beijing issued its most severe smog warning last week for the first time, a so-called red pollution alert, limiting industrial production, banning outdoor construction and halting classes at primary schools and kindergartens. Shanghai, the financial capital, also had its worst smog in two years this week.

“With acute pollution across major cities in China, partly attributable to vehicle exhaust, the objective is to slow consumption growth,” Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co., wrote in a research report Wednesday. “If crude prices continue to decline then refiners will continue to benefit through margin expansion as refined product prices are kept constant.”

Share price surge

China Petroleum & Chemical Corp., Asia’s biggest refiner, rose as much as 11 percent to HK$4.83, the biggest intraday gain since October 2008. PetroChina Co., the country’s second-largest refiner, gained as much as 6.9 percent to HK$5.40, the biggest advance in more than two months. Both companies earlier this week had fallen to their lowest levels in at least six years.

The suspension of oil product price adjustments may temporarily widen refining margins by $2 to $3 a barrel, and they may improve further if crude prices continue to fall, Beijing-based China International Capital Corp. said in an e-mailed report. Brent crude, a benchmark for most of the world’s oil, has fallen about 14 percent this month.

China changed its system for setting gasoline and diesel prices in March 2013 to more closely track refiners’ crude costs. Fuel prices have been reviewed every 10 working days based on the average price of a basket of crudes, down from 22 days previously. The government will revise the current oil pricing mechanism and will seek public comment on the changes, the NDRC said in its statement.

The nation’s gasoline demand exceeded expectations in the first 10 months of the year by increasing 10.4 percent from a year earlier, compared with weak diesel and fuel oil consumption, underscoring the country’s shift away from heavy manufacturing, the Paris-based International Energy Agency said in its monthly Oil Market Reported on Dec. 11.

— With assistance by Shidong Zhang, Guo Aibing, and Jing Yang

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