China's oil companies will be given the autonomy to set retail prices for fuels under a new pricing system to be implemented by the government, depending on international crude oil prices, China Securities Journal reported Friday, citing an unnamed source.
The government will no longer issue notifications regarding price adjustments and oil companies need not wait for one to alter retail prices, as long as international crude prices stay within a range, the source was quoted as saying.
China's top economic planner National Development and Reform Commission will step in only when the price of crude oil moves outside the range. "The NDRC retains the right to the final retail price adjustment in order to reduce the impact of the high oil prices on the domestic economy," the report said.
The source did not, however, elaborate on the actual range for international crude oil price.
Oil companies would need to lower retail prices for gasoline and diesel when the conditions for a price reduction are met, the source said. Companies can choose not to raise, or increase retail prices by a lower level than allowed, when the criteria for a price hike have been fulfilled, the source added.
Since 2009, Beijing has adopted a pricing system where it would adjust prices of refined products whenever the rolling 22-day average of a basket of crudes rises or falls by at least 4%.
The NDRC refers to the average price of the basket of crudes -- Brent, Dubai and Cinta -- when adjusting domestic refined product prices.
The central government announces the maximum retail prices for gasoline and diesel in all provinces, and the departments there have the authority to determine the maximum wholesale price for refined products.
But China's policymakers often delayed price adjustments because of other social and economic factors such as inflation.
The NDRC has been widely expected since late last year to introduce changes to the pricing mechanism, including shortening the domestic pricing cycle from the current 22 days to 10 days to better reflect changes in the international price of crude oil.
According to the source, the pricing cycle will be shortened to 10 days and the basket of crudes under the new mechanism will include WTI, and that one of the others in the basket currently may be dropped.
The pricing formula will also become more transparent, the source said. "In the future, details regarding the crude basket and exchange rate adjustment cycle will likely be announced," the report quoted the source as saying.
