China cuts cost of crude

Chinese authorities have reduced the fuel price by five percent and said the move was made as a result of internationally low crude oil prices and changes in global and regional economic conditions.

The prices at the pumps are now at the lowest levels since December 2010.

The National Development and Reform Commission (NRDC) said gasoline retail prices will be reduced by 420 Yuan (£42.50, $65.90) a tonne and diesel prices by 400 Yuan (£42.46, $65.99), as of today. The new prices come as the National Bureau of Statistics announced consumer price inflation in the country had slowed to 2.2 percent last month from three percent in May, and 3.4 percent in April, respectively.

According to a Bloomberg News survey of economists, China, which imports more than half its oil, needs to address eroding margins at three of its biggest crude processors, China Petroleum & Chemical Corp, PetroChina Co., and Sinopec, after GDP in the second quarter expanded at the slowest pace since 2009.

Sanford C. Bernstein & Co. analyst Neil Beveridge said pushing refining margins into negative territory would not be a good thing for oil refiners. “Although Sinopec has underperformed since the first quarter and is now in deep value territory, we see no clear catalysts in the near term,” he told the news network.

Tony Regan, Principal Consultant at advisory company Tri-Zen said the impact at the pump is unlikely to be significant, despite recent data showed China has imported less crude oil in recent months.

“The oil demand in the second quarter is always lower than the first and third quarter so we mustn’t read too much into that but yes, it does look as if Chinese demand is slowing a little bit,” he said in an interview with the BBC. “But they are bringing in more efficiency measures so they’re getting more efficient in the use of oil as well.”

Regan speculated the government “might be worried,” but said it was unlikely it would want to stimulate pressure for consumers to buy oil. “They won’t want to see a sharp increase in demand as a result of the lower prices,” he said. “It suggests pain and anguish when they have to increase prices, so they’ll go for some adjustments that will be less noticed.”

China introduced an oil pricing system in 2009 which monitors the 22-day moving average of the combined levels of Brent, Dubai and Indonesia’s crude. The government adjust the rate levels if there is more than a four percent change in international markets.


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