Beijing has cut fuel prices for the first time since a new pricing mechanism was launched this month, although the magnitude was small relative to the amount available for reductions. The guidance petrol price was lowered by 140 yuan (HK$158.75) a tonne and diesel by 160 yuan a tonne at midnight, the National Development and Reform Commission said. 'Recent international oil prices have kept falling,' said the NDRC. 'Even though they have been volatile, there is room for them to come down according to the improved fuel price-setting mechanism. Hence the latest price cut.' At the pump, the price has been cut by 10 fen or 2.27 per cent to 4.31 yuan per litre for petrol, and by 14 fen or 3 per cent to 4.52 yuan per litre for diesel, according to commodities consultancy CBI China. The cut on guidance prices came after PetroChina and China Petroleum & Chemical Corp engaged in a minor price war in eastern coastal cities. They were trying to get rid of excess inventory as the price of fuel fell due to reduced factory output. After the reduction, the break-even point for refiners fell to US$58 from US$60 per barrel of crude oil processed, said Guotai Junan Securities analyst Grace Liu Gu. Shenyin Wanguo Securities analyst Yu Chunmei believes the break-even point dropped to US$53 a barrel. Ms Yu said given that the Dubai crude benchmark averaged about US$42 a barrel last month, mainland refiners still had room for profit. However, Ms Liu said because of the acute volatility of global oil prices, it was difficult to estimate refiners' crude costs as their transactions information was not publicly available. 'But one thing we note is that the government is adjusting the price even in small amounts,' she said. 'It suggests it may be moving to more frequent adjustments according to international price movements, which will help ensure refiners' profit margins.' The central government this month launched a 'cost-plus' formula to set retail prices by adding refining costs, taxes and 'reasonable' profit margins to global oil prices. It has not defined 'reasonable', but analysts estimate it could amount to US$4 to US$5 a barrel. Critics said the system was not much different from the previous one since Beijing stated clearly it held ultimate control on prices. It remains to be seen how closely the central government will allow domestic prices to follow international ones if oil prices surge again. '[The reform] is a small intermediate step to an eventual goal [of full price liberalisation],' said Kim Eng Securities analyst Larry Grace. 'The real test hasn't come yet.' February New York crude was at US$37.38 a barrel in mid-afternoon London trade, down 74.6 per cent from its July peak.