China increases fuel prices to help oil refiners

China, the world’s second-biggest energy consumer, raised fuel prices by as much as 11 percent on Tuesday to prevent China Petroleum & Chemical Corp. from making losses as crude oil costs rise.

Pump prices for 90 octane gasoline will be set at a maximum of 5.71 yuan ($0.84) a liter, or about $3.16 a gallon, in Beijing, the National Development and Reform Commission said on Monday. That compares with an average of $2.69 a gallon in the U.S. The fuel price increase is China’s third this year.

China Petroleum, also known as Sinopec, the nation’s biggest refiner, said on May 22 it will lose money turning oil into fuels should crude trade above $60 a barrel and the government stop it increasing prices. China’s consumer prices fell for a fourth month in May, making it easier for the government to raise the cost of oil.

Crude oil futures have risen 60 percent to more than $70 a barrel in New York this year on optimism a global economic recovery will spur demand for fuel.

“These price increases are very positive news for Sinopec and also for PetroChina,” Grace Liu, analyst at Guotai Junan Securities, said by phone in Shenzhen. “It shows that the government is serious about enforcing the pricing mechanism to take into account rising crude oil prices.”

Sinopec climbed as much as 4.6 percent to 11.08 yuan and traded at 10.75 yuan at 1:06 p.m. in Shanghai. The Hong Kong- listed shares rose 5.9 percent to HK$6.06. PetroChina Co., the nation’s second-biggest refiner, gained 2.8 percent in Shanghai and 3.1 percent in Hong Kong.

The government controls prices under a mechanism introduced in December that takes into account crude-oil costs, taxes and a profit for refiners. China may adjust fuel prices when crude-oil costs change more than 4 percent over 22 straight working days, the commission said on May 8.
The government last increased prices on June 1 by 400 yuan a ton, or 8 percent.

Profit at Sinopec fell 47 percent last year before the pricing changes were introduced because government curbs meant it was unable to pass on higher oil costs to customers. PetroChina posted a fourfold increase in oil-processing losses last year.

Sinopec and PetroChina, who operate most of the nation’s retail gasoline stations, must ensure the market is adequately supplied and must stick to the government’s price policies, the NDRC said in its statement on Monday. Local governments will be responsible for ensuring the price increases are implemented and penalties will be imposed for any illegal price adjustments, the commission said.

Prices for gasoline and diesel will rise by 600 yuan a ton and jet fuel by 620 yuan, the NDRC said on Monday. The price increases will be different in each city and region, it said.

The ceiling retail price for 90 octane gasoline that meets euro III standards will be 7,795 yuan in southern Guangdong province. The ceiling price for 90 octane that meets euro II standards will vary from 7,485 yuan per ton in Tianjin, a port city near Beijing, to 7,705 yuan per ton in Chengdu in southwestern China.
Gasoline and diesel prices supplied to the military, the state oil reserves and the railway system were also raised by between 9.8 percent and 11.1 percent, the NDRC said.

China is raising prices amid a surge in demand for automobiles in the world’s third-largest economy. Passenger-car sales rose 47 percent in May to 829,100 units, the biggest jump since February 2006.
Industrial production expanded 8.9 percent last month, boosting fuel use and adding to signs China is recovering from its worst slump in almost a decade.

 

(Source: Port News)