China’s planning agency sets floor for fuel price cuts at US$40 a barrel
Print Edition
CHINA will not cut domestic retail fuel prices when international oil prices fall below US$40 a barrel, the country’s planning agency said yesterday.
Previously, it set a ceiling for prices, which will not be raised if international oil prices rise above US$130 a barrel.
The limits are aimed at curbing pollution and countering the negative effects of major fluctuations in international oil prices, the National Development and Reform Commission said yesterday. It said the current pricing mechanism had not responded well to continuous global slumps since the second half of 2014.
The move also aims to protect China’s energy independence, for increased imports under a lower price can damage China’s own production capacity in the long run and dilute the use of new energy, the NDRC said.
As China’s economy is highly dependent on the consumption of oil, a high price may slow down the pace of economic development, while a low price is expected to raise oil imports and thus put its energy independence at risk.
The current pricing system introduced in 2013 changes China’s oil prices every two weeks based on global crude oil prices. However, as the global oil market continues to decline, the old system requires more market-oriented adaptations.
The commission said the minimum price is calculated based on China’s costs in oil production, global price curves and national policies.
Currently the average global cost of producing one barrel is around US$40 and China’s own production cost is even higher.
Profits from fuel sales below the US$40 level will go to a fund to promote energy conservation and security and improve fuel quality, the NDRC said.
The capital will also go to fields concerning energy saving, oil quality improvement and oil supply safety.
“As a country that’s both a big oil importer and consumer, as well as a large producer, prices that are too high or too low will have a negative impact on China’s economy,” the NDRC said.
Low prices would be a short-term benefit, “but it may put constraints on China’s domestic oil production and reduce supply,” it said.
The government will introduce a series of reforms to go with the new pricing mechanism.
The price of liquefied petroleum gas will be opened to the market due to oversupply.
Following the change, the commission yesterday announced cuts in the retail price of gasoline and diesel from today. Gasoline prices drop 140 yuan (US$21) per ton, while diesel prices will fall 135 yuan per ton.
The NDRC had suspended fuel price adjustments twice since December 15, as it was awaiting the changes.
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