China, the world's second largest oil consumer, forces an increase in gasoline and diesel prices as international crude costs grow.
A sign of the times as China's gas prices rise again Image: Jiaren Lau |
The National Development and Reform Commission (NDRC) once again increased the price of fuel by 600 yuan ($95) per metric ton, as all three crude grades rose by over 10% in February. Refiners hiked their prices by 7% more for gasoline and 7.8% more for diesel, the biggest price increases in more than two years and the second in the last six weeks. Chinese majors Sinopec and PetroChina have been pressing the government to adjust fuel prices amid growing global costs and thinner refining margins at home.
Despite the increase, “domestic margins would still be loss making at $7.1 a barrel”, says BNP Paribas analyst Cheng Khoo, as oil majors struggle with widening processing deficits and other mounting costs. The tariff increase will also boost oil refiners' breakeven crude cost by $7 a barrel, meaning Sinopec's and PetroChina's costs will rise to $112 and $105 a barrel respectively.
The NDRC had been controlling tariffs last year in order to curb inflation. However, since consumer prices grew by only 3.2% in February, the government will now have more room to manoeuvre. Gordon Kwan, head of regional energy research at Mirae Asset Securities Ltd. in Hong Kong, believes the adjustments signal “the official ending of China's anti-inflation campaign”.
Inflation exceeded the government's targets of 4% every month of last year, strengthening the need to keep fuel prices down and cushion the impact on the economy.