China to cut fuel prices 3 pct but little boost to demand

China will cut gasoline and
diesel prices by about 3 percent from Thursday in response to
declines in international crude oil prices, although the
moderate cut is unlikely to be sufficient to stimulate demand
much in the world's second-largest oil consumer.	
    The cuts - 330 yuan ($52.3) per tonne for gasoline and 310
yuan per tonne for diesel, according to the National Development
and Reform Commission - are the first since October, and are
likely to disappoint refiners hoping to benefit from lower oil
prices.	
    "Chinese refiners are nearer to breakeven as things stand
... a 300 yuan decrease would re-instate the previous loss
position," David Hewitt, an oil analyst at Credit Suisse, said
in a May 8 report.	
    Some analysts said they had hoped that the government would
unveil a long-waited revision of its fuel-pricing scheme along
with the cuts that would allow domestic fuel prices move more
closely with international crude oil costs.	
    But NDRC did not mention the new scheme in the statement.	
    "The government lost a good opportunity to do that," said a
Shanghai-based analyst at an investment bank.	
    For demand, the cut is too small to spur consumption, since
fuel prices would remain near record highs and economic activity
is slowing.	
    China's apparent oil demand - crude runs plus net imports of
oil products - rose 3.2 percent from a year earlier to about
9.44 million barrels per day (bpd) in March, the slowest level
in five months amid a cooling economic growth, Reuters
calculations from official data showed.	
    Beijing last raised fuel prices by 6-7 percent on March 20,
lifting gasoline and diesel rates to historical highs.	

    BLOW FOR REFINERS	
    The cut, which comes after a hike of around 11 percent in
the first quarter, will deal a blow to refineries, which have
battled losses for years as they cannot fully pass on higher
crude costs to consumers.	
    Living at the mercy of China's fuel-prices reforms, oil
giants PetroChina  and Sinopec Corp
  have faced heavy refining losses, with the
latter posting a worse than expected 35 percent drop in earnings
in the first quarter. PetroChina posted a refining loss of 10.4
billion yuan in the first quarter, after losing 60 billion yuan
in the whole of last year. 	
    With the latest fuel price reduction, Sinopec will lose $5
per barrel and PetroChina $7 a barrel in refining if crude
prices remain at current levels, CLSA said.	
    China, which controls fuel prices to curb inflation, raised
them as much as 11 percent in the first quarter, while Brent oil
rose 12 percent from a year earlier. Last year, Beijing raised
prices as much as 7.1 percent while crude gained 13 percent.	
    Under the existing fuel-pricing formula, the government can
lower fuel prices if a weighted moving average price for a
basket of crudes - Brent, Dubai and Cinta - falls more than 4
percent. Beijing has never disclosed detailed calculations,
fanning speculation over when the trigger point is reached.	
    The government has previously indicated that it would change
the types of crude oil in the pricing system, shorten the review
period and narrow the trigger range under a revised scheme.	
    Brent crude slipped towards $112 on Wednesday, on
track for its longest losing streak in almost two years, as
political uncertainty in the debt-laden euro zone and rising oil
stocks in the United States revived fuel demand concerns. Brent
crude has fallen nearly 12 percent since touching $128 in March,
the highest level this year.	
    Top Chinese refineries plan to raise crude oil processing
moderately in May after scaling down operations in the past two
months to near three-year lows because of maintenance and high
crude oil costs, Reuters polls showed.

 – Reuters