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Increase in city's fuel prices

LOCAL motor fuel prices will jump by up to almost 10 percent today as the government raises prices for the second time in one month to track higher crude oil rates.

In Shanghai, the top retail price for 93-octane gasoline - the most popular choice - climbs to 5.99 yuan (87 US cents) per liter from 5.51 yuan, and that for zero-grade diesel will be 5.73 yuan a liter, against 5.22 yuan before the increase.

Petrol stations can set pump rates below the ceiling prices, which vary in provinces based on benchmarks set by the National Development and Reform Commission, China's top economic planner and fuel prices regulator.

The NDRC last night announced an increase of 600 yuan a ton for gasoline and diesel, or a 9 percent to 10 percent rise. It last raised motor fuel prices on June 1, by 400 yuan per ton, or 6 percent to 7 percent.

The NDRC also told state oil firms yesterday to raise ex-factory prices for jet fuel by almost 26 percent effective today, following a 13 percent rise in May.

The increases would lift refining margins of refiners Sinopec Corp and PetroChina Co, but add costs for airlines.

Liao Kaishun, an analyst at consulting firm CBI China, said the motor fuel price increase is in line with market expectations of a rise of 500 yuan to 600 yuan.

"But this could stifle fuel demand, as well as have an impact on the ongoing economic recovery," Liao said. "The NDRC may have no other choice but to raise prices if it wants to seriously enforce pricing reforms of domestic refined oil."

China implemented a new pricing mechanism last December, as it eased controls on retail fuel prices to match them more closely with global rates.

Under the new pricing mechanism, China can alter fuel prices when crude prices change by more than 4 percent over 22 consecutive working days. Fuel prices are linked to a basket of international crude oil prices.

The government can still impose a price freeze if crude soars too high and adopt fiscal and financial policies to ensure output and supply.

New York crude rose above US$70 a barrel yesterday, versus about US$66 at the end of May.


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