Last week, Chinese citizens saw the biggest drop in refined oil prices in over three years: on June 9, the price of gasoline and diesel fell by 530 yuan and 510 yuan per tonne respectively. The falls were government-led. China has a pricing system in place which allows the state to adjust domestic fuel prices when international crude prices change by more than 4% over a period of 22 working days.
An official from China’s National Development and Reform Commission explained that the EU debt crisis, combined with a lack of confidence in European and American economic recoveries, has caused an international slump in oil prices. Prices have dropped to less than US$90 on the New York Mercantile Exchange (NYMEX), while the price of Brent crude has fallen to just US$100 a barrel. This was the reason prices had been adjusted in China.
In fact, the NDRC did not lower prices in China by as much as the market expected. Many analysts had predicted that domestic oil prices could decline by as much as 600 yuan per tonne. Some institutions put the figure as high as 700 yuan.
The NDRC official said that, while the body took note of market forecasts, the price change was determined in reference to the fall in international oil prices. The recent change in the renminbi appreciation rate also caused the value of the yuan to fall, pushing the oil price even lower than expected, he added.
Since China’s oil pricing mechanism was introduced in 2009, domestic oil prices have been adjusted 18 times; on 12 of those occasions, the prices were increased, and the other six times they were cut. A new pricing mechanism introduced on June 8 is not expected to bring significant changes.
Translated by chinadialogue volunteer Clare Pennington