China to reform oil pricing mechanism

To make domestic oil prices better reflect international prices, China is considering a reform of its pricing mechanism. On July 1st, the country lowered import duties for diesel and jet kerosene to zero, and cut fuel oil prices.

China to reform oil pricing mechanism

China has already lowered import duties for diesel and jet kerosene to zero. It’s also discounted the price of fuel oil to one percent, from three percent effective July 1st.

Li Qingfeng, general manager of Shanghai Petroleum Exchange, said, “This policy will be conducive to China’s energy imports. China is one of the major energy consumers in the world, and demand is increasing. The policy will help meet the domestic need for energy.”

Li expects oil prices within China will remain stable, as weakening global oil prices have no signs of seeing a massive resurgence.

In the meantime, experts say it’s a good time for China to reform its oil pricing mechanism.

Zhou Dadi, director of China Energy Research Institute, NDRC, said, “The current oil pricing mechanism goes some way to ward off global price fluctuations, but it still remains too rigid. It doesn’t properly reflect changes in the market.”

Under China’s current domestic oil pricing mechanism, adopted in 2008, the country’s benchmark refined oil prices are set in accordance with the highest retail price. And international price fluctuations are taken into account only if the surge or plunge scale surpasses 4 percent with 22 consecutive working days.

Experts say reform of the current domestic oil pricing mechanism has always been an important goal for China’s energy research institute. But the government has not yet come up with the perfect solution.

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