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September 1, 2009

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Oil price scheme stays intact

CHINA said yesterday that its market-based oil pricing scheme stayed intact, despite holding off a much-anticipated price hike last eek.

The step back from a possible 6-8 percent increase in retail gasoline and diesel prices, which would have been the fourth this year, sent share prices of state refiner Sinopec Corp down 3 percent in Hong Kong and 10 percent lower in Shanghai yesterday.

The National Development and Reform Commission, China's top economic planner, said yesterday that no recent changes had been made to its existing fuel price system, and denied a media report that China would cut the frequency it adjusted prices.

If the 22-day moving average of global crude prices, on which Chinese fuel prices were based, is sharply above the previous price change in late July, China may then announce a bigger price increase after the October 1 National Day holiday to make up for last week's inaction, said Liu Bo of Guojin Securities.

But if crude prices retreat sharply, the government may cancel out a previous increase with a price cut.

China ushered in a "perfected" fuel pricing system at the start of this year to track a basket of global crudes that more or less guaranteed a margin for refiners when crude was under US$80.

Energy price reforms have been long discussed. The natural gas and electricity sectors both remain tightly regulated.


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