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Saturday 29 November 2008
Reform Plan to Allow Refiners to Set Prices if Crude Below US$80
Beijing plans to relax controls on fuel prices as long as crude oil stays below US$130 a barrel and ease curbs on refiners under a long-awaited reform plan, a source said.
Reform Plan to Allow Refiners to Set Prices if Crude Below US$80
Reuters in Beijing 29 November 2008
Beijing plans to relax controls on fuel prices as long as crude oil stays below US$130 a barrel and ease curbs on refiners under a long-awaited reform plan, a source said.
The source yesterday confirmed a report in the Shanghai Securities News, which quoted unnamed sources as saying that when crude was below US$80 a barrel, refiners would be able to set fuel prices in line with crude.
With crude between US$80 and US$130, they would have to accept reduced profit margins.
Under the new scheme, retail price movements would be restricted to 800 yuan (HK$908) per tonne each month and 1,600 yuan per tonne within three months, the paper said.
But refined oil prices would still only be allowed to fluctuate at intervals of at least 10 days, the source said. All the plans would be published to seek public opinions and altered, if necessary, before taking effect.
The reform package will allow retail prices to rise 4 per cent above refinery gate prices, after factoring in the cost of transport and distribution. Refinery gate prices include crude costs, processing costs and a “reasonable profit margin”.
Mainland media reports have said the average crude price was based on a basket of Brent, Dubai and Minas blends of crude oil.
Qiu Xiaofeng, an oil analyst with China Merchants Securities, said the reform plan could help oil firms Sinopec Corp and PetroChina, which have often had to bear big refining losses when crude oil is pricier than Chinese fuel prices.
“Refineries will be better shielded from refining losses than in the past and oil firms’ profitability will also be more predictable,” Mr. Qiu said. “Given the recent hefty slump in oil prices, it will also introduce some competition into products selling.”
But he doubted if the pricing mechanism would weather wide swings in the oil market, since it maintained a unique formula of margin levels and did not address the issue of how to combine it with international refinery margin fluctuations.
US light crude has fallen about 65 per cent from its peak of US$147 a barrel in July, spurring a big increase in imports into China, where the government has not moved prices since June, giving refiners a rare chance to make big profits supplying motorists.
The government also intended to raise the refined oil consumption tax, which would be renamed “fuel consumption tax”, to replace road and waterway tolls and fees and some road charges, the official source said. The relevant road charges will be scrapped on January 1 next year.
The fuel consumption tax, covering seven refined products, will be raised sufficiently to replace the revenue from the scrapped tolls, fees and charges, totalling about US$24 billion a year.
“This might explain the sudden surges in wholesale fuel prices in some regions recently,” Mr. Qiu said.
The tax is now levied on refiners, but the reform envisages moving the burden to fuel wholesalers.
Fuel prices for rail freight will be set once a year, based on the previous year’s diesel price, and airlines’ fuel surcharges will be adjusted every six months, based on the previous six months’ prices for jet kerosene.
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Reform Plan to Allow Refiners to Set Prices if Crude Below US$80
Reuters in Beijing
29 November 2008
Beijing plans to relax controls on fuel prices as long as crude oil stays below US$130 a barrel and ease curbs on refiners under a long-awaited reform plan, a source said.
The source yesterday confirmed a report in the Shanghai Securities News, which quoted unnamed sources as saying that when crude was below US$80 a barrel, refiners would be able to set fuel prices in line with crude.
With crude between US$80 and US$130, they would have to accept reduced profit margins.
Under the new scheme, retail price movements would be restricted to 800 yuan (HK$908) per tonne each month and 1,600 yuan per tonne within three months, the paper said.
But refined oil prices would still only be allowed to fluctuate at intervals of at least 10 days, the source said. All the plans would be published to seek public opinions and altered, if necessary, before taking effect.
The reform package will allow retail prices to rise 4 per cent above refinery gate prices, after factoring in the cost of transport and distribution. Refinery gate prices include crude costs, processing costs and a “reasonable profit margin”.
Mainland media reports have said the average crude price was based on a basket of Brent, Dubai and Minas blends of crude oil.
Qiu Xiaofeng, an oil analyst with China Merchants Securities, said the reform plan could help oil firms Sinopec Corp and PetroChina, which have often had to bear big refining losses when crude oil is pricier than Chinese fuel prices.
“Refineries will be better shielded from refining losses than in the past and oil firms’ profitability will also be more predictable,” Mr. Qiu said. “Given the recent hefty slump in oil prices, it will also introduce some competition into products selling.”
But he doubted if the pricing mechanism would weather wide swings in the oil market, since it maintained a unique formula of margin levels and did not address the issue of how to combine it with international refinery margin fluctuations.
US light crude has fallen about 65 per cent from its peak of US$147 a barrel in July, spurring a big increase in imports into China, where the government has not moved prices since June, giving refiners a rare chance to make big profits supplying motorists.
The government also intended to raise the refined oil consumption tax, which would be renamed “fuel consumption tax”, to replace road and waterway tolls and fees and some road charges, the official source said. The relevant road charges will be scrapped on January 1 next year.
The fuel consumption tax, covering seven refined products, will be raised sufficiently to replace the revenue from the scrapped tolls, fees and charges, totalling about US$24 billion a year.
“This might explain the sudden surges in wholesale fuel prices in some regions recently,” Mr. Qiu said.
The tax is now levied on refiners, but the reform envisages moving the burden to fuel wholesalers.
Fuel prices for rail freight will be set once a year, based on the previous year’s diesel price, and airlines’ fuel surcharges will be adjusted every six months, based on the previous six months’ prices for jet kerosene.
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