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September 30, 2009

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China rolls back gas pump prices by almost 3%

CHINA has cut motor fuel prices nearly 3 percent to reflect retreating crude costs - the seventh adjustment this year and the first cut in two months.

The lower prices that went into effect at midnight last night may encourage more motorists to hit the road during the National Day holiday that starts tomorrow and boost consumer demand.

At the pumps in Shanghai, the ceiling price for widely used 93-octane gasoline fell to 5.9 yuan (86 US cents) a liter from 6.05 yuan, and zero-grade diesel dropped to 5.64 yuan from 5.80 yuan. Retail prices vary between regions.

Overall, prices for gasoline and diesel were cut by 190 yuan per ton, according to the National Development and Reform Commission, which is China's top planner and sets energy prices. The reduction was in line with market expectations.

"The cut was made in a timely manner as the NDRC wants to change people's impression that it always acts slowly in reducing prices but quickly in raising them," said Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University.

China implemented a new fuel pricing mechanism last December that tracks a basket of global crude prices and calls for an adjustment when the 22-day moving average changes more than 4 percent.

The commission, however, also considers supply and demand, among other factors, in setting prices.

When China last raised fuel prices by 300 yuan a ton on September 2, analysts said the hike was only about half what it should have been under the pricing system, as the government wanted to ease pressure on motorists in the run-up to the National Day holiday and avoid dampening the fledgling recovery.

The more market-based pricing mechanism guarantees a fixed profit margin for oil companies when crude is below US$80 a barrel, helping refiners such as Sinopec Corp end years of losses caused by soaring crude prices and state fuel price caps.

The 22-day moving average of the basket was US$67.60 a barrel on Monday, down 5.45 percent from the previous adjustment, according to commodities research company CBI China.

The cut was the third reduction this year, along with four increases.

Pump prices also include a 1 yuan consumption tax per liter of gasoline and a 17 percent value added tax. A Sinopec spokesman used those figures to try to ease public concern for high pump prices.

"If you deduct the taxes, a liter of gasoline is about 4 yuan. But if you go to the Summer Place in Beijing, a bottle of mineral water is 3 yuan," he said, pointing out that gasoline is processed from crude oil found as deep as 5,000 meters underground.


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