China lifts gasoline, diesel prices 7% today
China raised retail diesel and gasoline prices by 6-7 percent from Monday, the second and biggest increase this year, relieving some pressure on refiners but adding to the burden on farmers and small businesses.
The increase was short of the rise of 10 percent or more that state oil firms and some analysts had argued was needed after global crude prices surged 30 percent in May, their biggest one-month gain in a decade.
The National Development and Reform Commission, China's top planning body, said the price rise could have been bigger.
'Based on the refined oil products price-setting mechanism, the decision was taken to raise the price of gasoline and diesel, but after taking related factors into account, it was considered appropriate to reduce the size of the price adjustment,' it said in a statement on its website.
Although the price rise shows Beijing is making an effort to stick with fuel price reforms launched at the start of the year, promising more regular and transparent management of fuel prices, the decision to water down the increase will reinforce suspicions that transparent pricing is taking second place to politics.
And the rise may not satisfy top state refiner Sinopec , whose chairman said this month the company was making losses with crude oil prices above $60 per barrel.
The 400 yuan ($58.59) per tonne rise by the world's No. 2 oil consuming country, which still effectively regulates prices centrally, follows a smaller 3-5 percent rise in March and a 2-3 percent price cut in January, and puts prices at their highest since December.
Gasoline is now within a whisker of the price set last June, when crude was close to its record high of $147 per barrel.
One executive at Sinopec, who was speaking before the official announcement but had already been informed of the price rise, was grudgingly positive about the latest rise.
'It's a good thing for us. It shows the government is moving in the right direction. But if $66 crude oil holds, we will need another 400 yuan increase in the near future to break even.'
Despite reports on Wednesday that China's top economic policymakers had no intention of raising prices during the long holiday weekend, speculation of a rise had intensified last week as Beijing came under growing pressure to maintain credibility in its semi-free-market system and to restore refining profitability at Sinopec and its rival PetroChina.
SHARE LIFT, OIL HIT?
The news is likely to lift shares in Sinopec and No. 2 refiner PetroChina when they open on Monday, but could be a blow to oil prices that have surged above $66 a barrel on hopes of recovering global demand, much of that optimism tied to China and its efforts to stimulate the world's third-largest economy.
Part of that stimulus package has included incentives to buy vehicles, and car sales hit a record high in March and April in China, but it remains to be seen whether consumers will be as keen with more of their disposable income being siphoned into fuel costs.
Although Chinese oil demand showed signs of growth last month, hinting at a wider economic revival, it was not because of demand for gasoline and diesel. Exports of diesel hit a record in April and exports of gasoline were close to the highest ever.
The Chinese price change comes two days after India's newly empowered government raised the prospect of fully liberalising domestic motor fuel prices, a move that could temper demand growth in one of the few major consumers where consumption is expected to increase this year.
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