China Improves Oil Pricing Mechanism      

The National Development and Reform Commission on May 7th outlined the temporary regulations on petroleum pricing.
   Companies would set prices for crude oil their own in accordance with international market prices, the rules say.
   Sinopec Group and China National Petroleum Corp (CNPC) would negotiate the prices for the crude they supply to each other based on the principle of the cost of domestic onshore crude plus freight as well as the cost of imported crude upon arrival at refineries, the NDRC said. Regional refineries would source crude at the prices based on the agreed prices between Sinopec Group and CNPC.
   And China National Offshore Oil Corp and other crude producers would set crude prices own based on international market prices.
   Domestic retail oil products prices would be linked to international crude prices, by adding to refining costs, taxes, selling-process fees and a reasonable profit. The oil products prices could be adjusted when the internationally average crude prices change more than 4% over 22 consecutive working days.
   When the global crude trades below US$80 a barrel, the nation will calculate and set domestic oil products prices with normal processing crude profits of refineries; As the international crude prices exceed US$80 per barrel, the government will cut refineries' margin until it reaches zero and then set domestic oil products prices; At above US$130 per barrel, the government will in principle not raise gasoline and diesel prices or raise them only marginally, while it will adopt suitable fiscal and financial policies to ensure fuel production and supply with taking into account the interests of producers, consumers and ensuring the domestic economy development.
   The government guides the pricing of retail and wholesale prices for gasoline and diesel, and it set the ex-factory prices for aviation fuels.
   China has implemented a new, market-oriented oil products pricing system since December 19th, 2008, when the domestic oil products prices are indirectly linked to global crude prices. At present, the government still has to play a role in setting oil products prices as the overall market system is not mature. The Chinese government will provide subsidy to the needs and other public sectors. Meanwhile, it will keep the trigger level for the crude windfall tax levied on oil producers when crude price exceeding US$40 a barrel, with the tax rate ranging from 20% to 40%.
   With competition mechanism formation and increasingly mature market system for oil products, the domestic oil products prices will eventually be liberalized, NDRC officials said.
   In today's market, the prices for gasoline and diesel, including tax, on China's mainland are lower than global other oil importers such as Japan, South Korea, India, Inner Mongolia and Afghanistan, as well as some developed nations in Europe.
   As expectations for raising domestic oil products prices are increasing soon among the industry, gasoline and diesel prices on wholesale rose by ranging RMB60 to RMB200 per ton in domestic regional markets on May 11th.