China NDRC to Cut Gasoline, Diesel Prices for Second Time in A Month

The Chinese government will cut gasoline and diesel prices for the second time in less than a month after a sharp decline in global oil prices, the National Reform and Development Commission said Friday.

The cuts will provide relief to consumers and businesses, and will follow the People's Bank of China's surprise interest rate cut, announced Thursday, which was intended to stimulate investment and economic growth.

The NDRC, the country's top economic planning body, said Friday that it would lower its benchmark domestic retail gasoline price by 530 yuan a metric ton, a decline of 5.5%, and the diesel price by 510 yuan a ton, or a decline of 5.8%. This will put the cost of gasoline at around $4 a gallon.

The NDRC also urged the nation's three major oil companies--PetroChina Co. (PTR), China Petroleum and Chemical Corp. (SNP) and Cnooc Ltd. (CEO)--to ensure the supply of diesel during the summer harvest season.

"The price cuts probably aren't meant to stimulate the economy, since the government is just abiding by its pricing mechanism," said Miao Tian, an energy analyst at North Square Blue Oak.

Still, the cuts will lower production costs for industry and agriculture, although retail oil demand will likely remain unchanged because the economy is slowing and China is entering a "dry" period for diesel consumption, analysts at Shandong-based energy consultancy Chem99 said in a research note.

Global benchmark oil prices have fallen by around 8.5% since May 10, when China last cut retail fuel prices, due to weakening demand and signs that the global economy is slowing.

Under China's oil product pricing system, domestic fuel prices may be adjusted when the moving average of a basket of international crudes changes by more than 4% over a period of 22 business days. The value of China's crude basket since May 8 had fallen by 9.34% as of Thursday, energy consultancy ICIS C1 Energy said.

The NDRC doesn't always rigidly follow the pricing formula, especially when prices are rising, due to inflationary concerns. However, it has been eager to cut prices once conditions have been met.

The State Council, China's cabinet, is considering a proposal that would see the pricing cycle shortened from 22 to 10 business days and the world's most liquid crude grade, West Texas Intermediate, included in the crude basket, local media have reported.

Ms. Tian said the government could reform its pricing mechanism in the near future if global oil prices continue to fall. Declining prices make consumers more likely to accept reforms. (foxbusiness.com, Edited by Topco)