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No timetable for new oil pricing mechanism

01-18-2011 14:50 BJT

Officials delay introduction of system as inflation pressures grow

BEIJING - China's plan to adjust the oil pricing system in 2010 fell through after country's top economic planner said there is no timetable for the introduction of the new system, The Beijing News reported on Friday, citing an unnamed official from the National Development and Reform Commission (NDRC).

"There is no specific schedule for the release of a new pricing system due to the current situation, and more details also need to be studied," according to the unnamed source.

"A market-oriented oil pricing mechanism is still the intention," according to the official.

Industry experts attribute the delay to the rise in crude prices and mounting inflationary pressures in China.

If the new system was introduced amid rising crude prices, more frequent adjustments to oil prices would be necessary, which would probably add more fuel to the inflationary pressures and run counter to the country's efforts to stabilize prices, say industry experts.

China's top economic planning body, the NDRC, had vowed to finalize a new pricing mechanism for refined oil products, such as diesel and jet fuel, by the end of 2010.

It is expected that under the new system, price adjustments will be based on a shorter period of 14 or possibly 10 days, rather than the current 22-day period.

The new mechanism will be more flexible in reflecting market changes and reducing price manipulation, and will eventually develop into a market-oriented system, the NDRC said earlier.

Under the current pricing mechanism, which was adopted in 2009, the government considers adjusting domestic refined oil prices when international prices change more than 4 percent within 22 working days.

Meanwhile, China is expected to increase oil prices on January 21 under the current mechanism, as the 22-working-day moving average price of Brent, Dubai and Cinta crude climbed 5.4 percent as of January 14, according to C1 Energy, an information provider for China's oil and gas markets.

The price of Brent crude oil touched its highest level in 27 months this week, as a result of production shutdowns and increasing energy demand globally.

China faces mounting inflationary pressure as the consumer price index (CPI), a main gauge of inflation, accelerated to a 28-month high of 5.1 percent in November last year from a year earlier. Most economists predict that the CPI will be in the range of 4 to 4.5 percent this year.

"The NDRC may put off the price adjustment, due to the current inflation pressure," said Han Xiaoping, CEO of China Energy Net, a major energy information provider.

However, that may lead to a cut in oil supply by gas stations, Han added.

The NDRC last adjusted oil products prices on Dec 22, a move which had already been postponed due to inflationary pressure.

"Rising crude prices add more difficulties to the government's efforts to curb inflation, and it's likely that the government will use subsidies or price control measures to stabilize the price of oil," said Fu Peng, chief analyst at Galaxy Futures.

Editor:Xiong Qu |Source: China Daily

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