Beijing cut retail fuel prices by less than expected, easing pressure on the two big state-backed refiners, which can use higher profit margins created by recent rapid declines in crude oil prices to offset earlier refining losses.
The central government cut petrol prices by 530 yuan a tonne (HK$650) and diesel prices by 510 yuan a tonne, the National Development and Reform Commission said. They are the biggest single price cuts since December 2008 at the height of the global financial crisis, when crude oil prices nosedived.
'We believe a rerun of the 2009/2010 [scenario] is likely, as falling crude prices with disproportionately smaller product price cuts help bring Sinopec [China Petroleum and Chemical] and PetroChina back to profit in their refining units,' said CLSA's head of Asia oil and gas research, Simon Powell. The duo together incurred more than 10 billion yuan in refining losses in the first quarter of this year alone.
Market participants had speculated fuel prices would be cut by up to 700 yuan a tonne. Shanghai-based commodities research house C1 Energy tipped a reduction of 620 yuan a tonne yesterday.
The latest reduction means retail petrol prices in Beijing would be cut by 5.3 per cent to 9,520 yuan a tonne, and those of diesel shaved by 5.5 per cent to 8,780 yuan a tonne.
Under the pricing system launched in late 2008, domestic fuel prices can be adjusted at the discretion of the government when the moving average of global crude oil prices over a 22-day period changes by more than 4 per cent from the previous price adjustment date.