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August 4, 2009

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Fuel pricing remains despite news of firms seeking changes

China will stick to a fuel-pricing mechanism introduced late last year, the National Development and Reform Commission disclosed yesterday, after a report said two major state oil companies are seeking changes in the system.

China may adjust fuel prices when global crude oil prices move by more than 4 percent from their moving average over 22 working days, the NDRC said in May when it gave details of the pricing system implemented since December last year.

But China National Radio reported on Sunday that the pricing formula is "too simple and transparent" that allows speculators to predict official price changes. This has resulted in product hoarding and volatile sales in the market, it said.

The radio said the state parents of Sinopec Corp and PetroChina Co were talking with the NDRC, the country's top economic planner, for improvements and modifications in the rules, citing unidentified officials at the two firms. It said the oil firms have suggested authorities use a range, for example a 4 to 10 percent change in crude prices, as the basis to adjust fuel prices to replace the existing 4 percent trigger point.

A Sinopec spokesman denied the firm had such views according to a local Beijing newspaper while PetroChina declined comment.

The NDRC reiterated yesterday it will continue to enforce the pricing system which has helped motivate refiners and ensure domestic fuel supplies this year.

The system, which takes into account crude costs, taxes and a profit for refiners, has now helped Sinopec and PetroChina to post record high profit margin, especially when counterparts overseas such as the United States and Singapore suffer from weak demand, low running rates and depressed crude prices, said CITIC Securities analyst Yin Xiaodong.

Still, the NDRC admitted there are problems in the system which need to be resolved through further reforms, but it didn't specify.


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