Price cut for oil products likely

China may cut the pump price of gasoline and diesel this month, making it the second price adjustment this year.

The central government is expected to make at least four price adjustments in refined oil products this year, and the second one is due this month, the Guangdong-based New Express Daily reported on Friday.

"There is room for a price cut in gasoline and diesel. In my opinion it will range between 200 yuan to 300 yuan per ton," said Zhao Pengcheng, analyst, TX Investment Consulting Co.

China's largest oil refiner, Sinopec, could now make a profit of 750 yuan to 800 yuan for refining each ton of crude, said Zhao.

The nation should make refined oil price adjustments more frequently to check the oil smuggling by some small enterprises, said Han Xiaoping, a veteran energy analyst.

China cut benchmark retail gasoline and diesel prices by 2 percent and 3.2 percent respectively in January, the first since the new pricing mechanism for refined oil products took effect.

Gasoline prices were reduced by 140 yuan per ton, and that for diesel cut by 160 yuan per ton. At that time global crude prices were around $40 per barrel.

Some analysts said compared with domestic gasoline prices, the cut in diesel prices is more "urgent".

In the southern provinces like Guangdong, diesel smuggling has been on the rise, said Fan Xiaoping, an official with Guangdong Petroleum Industry Association.

Though China's crude prices are fully linked to international prices, refined oil prices are still controlled by the government. The gap between the two pricing systems has caused many difficulties for domestic oil companies.

Sinopec earlier said its net profit for 2008 dropped by over 50 percent from a year earlier.

The company has seen "great losses in the oil refining business" due to the gap between high global crude prices and the domestic refined oil prices in the first half of 2008, said a company statement.

This year China began to levy the long-awaited fuel oil tax. Analysts said under the new pricing mechanism China's domestic prices are to be "indirectly linked" to global crude prices "in a controlled manner".

(China Daily 03/14/2009 page10)