Business

Fuel pricing mechanism could be reformed

By Wan Zhihong (China Daily)
Updated: 2010-09-01 12:48

Beijing - The nation should gradually adjust its oil pricing mechanism, a move that will better reflect prices at the open market, said analysts.

The current system has room for further improvement and is likely to see some price adjustments this year, they added.

"I don't think it would hurt the economy," said Lin Boqiang, director of China Center for Energy Economics Research at Xiamen University, when referring to suggestions that the nation could shorten the calculated period for adjusting domestic gasoline and diesel prices.

At present, domestic refined oil prices are adjusted when the moving average of a basket of international crude (Brent, Dubai and Cinta) changes more than 4 percent over 22 working days.

China adopted the pricing mechanism last year.

The fuel pricing mechanism has provoked debates on whether such a system is reasonable and suitable for the nation.

Analysts said that price hikes were synchronized with the rise in international crude prices but price cuts were always delayed.

Lin said that the 22-day period could be cut to 14 days, which is achievable this year.

It could then be shortened to within 10 days, he added. "Under such a system, domestic fuel prices would change more frequently, so as to better reflect the international crude price fluctuations," he said.

However, Zhou Dadi, researcher with the Energy Research Institute under the National Development and Reform Commission (NDRC) said such a move is not suitable for China at present.

"A relatively stable oil price is beneficial for China's current economic development," said Zhou, adding that any adjustment on the oil pricing system must be taken after careful consideration.

Opinions were divided within the NDRC over possible changes to the pricing mechanism, according to a report by the 21st Century Business Herald.

NDRC officials disagreed over details such as the time gap between price adjustments and the correlation between domestic and international prices, said the report.

One view within the NDRC was that the 22-day period was too long, suggesting a shorter period of 10 days, while another opinion was to maintain the 22-day base or even extend the timeline, the newspaper reported.

The growth rate of refined oil prices in the domestic market is smaller than that of global crude oil prices, the NDRC said in a recent statement, clarifying recent public doubt that domestic oil prices continue to rise while international oil prices are dropping.

Since China introduced a new refined oil price mechanism, the crude oil price on the international market has increased from $45 per barrel to about $76 per barrel, an increase of 70 percent.

China Daily