China limits fuel price hike to cushion impact of rising oil prices

By Sam Li and Lewis Jackson

BEIJING, March 23 (Reuters) - China took steps to cushion the impact of rising fuel prices on Monday, increasing the regulated ceiling prices for retail gasoline and diesel but limiting the hike to about half what would normally be applied under the government's pricing mechanism.

The adjustments brought on by rising oil prices linked to the U.S.-Israeli war on Iran were still the largest on record, however, lifting price limits close to levels seen in 2022 after Russia invaded Ukraine.

State planner the National Development and Reform Commission said on Monday it would raise the maximum retail prices for gasoline and diesel by 1,160 yuan ($168) per metric ton and 1,115 yuan per metric ton, respectively, starting from Monday midnight.

The NDRC reviews retail gasoline and diesel prices every 10 working days and applies adjustments reflecting changes in international crude oil prices, while taking into account average processing costs, taxes, distribution expenses, and appropriate profit margins.

Under the current pricing mechanism, gasoline and diesel prices would have been set to rise by 2,205 yuan per metric ton, and 2,120 yuan per metric ton, respectively, according to NDRC.

"To cushion the impact, ease the burden on downstream users, and support economic and social stability, authorities introduced temporary controls within the existing pricing framework," the state planner said in an announcement.

If fully implemented, the latest adjustment would cost a private car owner about $6.5 more to fill a 50-litre tank of 92-octane gasoline.

Sinopec notified customers via text message on Sunday evening that fuel prices are expected to see a relatively large increase at midnight on Monday and reminded them to refuel outside peak hours.

Anticipating a price surge, drivers nationwide queued at gas stations on Sunday night, according to posts on Rednote and Weibo.

“Drivers should switch to EVs as charging after 10 pm costs less than 50 cents per kWh,” said a Rednote user in Shanghai, posting a picture of a long line at a PetroChina station.

Analysts estimate that a 10% oil-price rise could lift Chinese producer price inflation, currently running at minus 0.9%, by 0.4 percentage points.

But Shuang Ding, chief China economist at Standard Chartered Bank, said a pure cost-push inflation was not good as it can squeeze corporate profits.

The government’s intervention will limit refiners’ selling price increases, but high oil prices could still curb consumer demand, keeping costs from being passed on and potentially deepening refining losses, according to Chinese consultancy GL Consulting.

Rising crude costs and weak demand have pushed the province of Shandong's independent refiners’ profits to near a three-year low, with losses reaching 122 yuan per ton by March 20, Oilchem reported. Shandong is the country's main hub for such small-scale oil refiners.

Earlier high operating rates for refiners and weak demand, combined with an export ban on fuel products, had pushed gasoline and diesel inventories to temporary highs, GL Consulting said.

($1 = 6.9075 Chinese yuan)