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Blow for motorists as pump prices now dearer by 6-7%

LOCAL pump prices rise 6 to 7 percent from today as the government has adjusted prices to reflect higher international crude oil costs.

Top retail price for the widely used 93 octane gasoline in Shanghai is now 5.51 yuan (80 US cents) per liter, up from 5.19 yuan, while that for zero grade diesel increases to 5.22 yuan from 4.88 yuan.

Retailers can set pump rates below the ceiling prices, which vary in different Chinese provinces based on benchmarks set by the National Development and Reform Commission.

On the national stage, the NDRC said last night it would raise gasoline and diesel prices by 400 yuan a ton, an increase of 6 to 7 percent.

The commission, China's top economic planner and price setter, said it could have raised prices higher under China's new pricing mechanism, but didn't do so for overall considerations. There had been speculation for weeks that the government might raise prices by 500 yuan per ton.

"The price increase is a bit mild as the government worries a too big hike would damp demand and the overall economic recovery progress," said Liao Kaishun, analyst at consulting firm CBI China.

"Anyway, this narrows price gap between home and abroad and could encourage refiners to process more, which would help maintain stable supply."

Benchmark New York crude rose above US$66 a barrel to a six-month high on Friday, completing May with a 30 percent gain, the biggest monthly increase in a decade. Crude above US$60 could translate to refining losses without government price rises, Sinopec Corp, Asia's top refiner, said last month.

Every US$1 rise in oil price above US$60 a barrel will require the government to hand out subsidies of about US$7 million per day to offset oil companies' downstream losses, according to Mirae Asset Securities' head of regional energy research Gordon Kwan.

Under the mechanism implemented last December, China can change fuel prices when crude prices change more than 4 percent over 22 consecutive working days. Fuel prices are linked to a basket of international crude oil prices, by adding to them transport fees, refining costs, taxes and a reasonable profit for refiners.

The NDRC said yesterday the price for the Brent, Dubai and Cinta benchmarks, which it uses as a basis for calculating international crude prices, had risen to US$57 a barrel from US$45 on March 25 when China last raised gasoline and diesel prices by 3 to 5 percent.


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