Oil pricing mechanism may see some tweaks
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The oil pricing mechanism adopted in 2009 is likely to see some adjustments this year to make it better reflect international crude price fluctuations, said analysts.
The government may shorten the calculation period for adjusting domestic gasoline and diesel prices to less than 22 days, said Han Xiaoping, chief information officer of energy portal China5e.com.
"With such a reform, domestic refined oil prices would be more closely linked with international crude prices. It will also help the pricing system to be more market-oriented," said Han.
There is also the need for more reforms in the long run to make the government capped prices totally market-based, he said. But such reforms can be undertaken only gradually.
Echoing Han's views, Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University, said: "In my opinion we can shorten the 22-day period to 14 days."
China adopted a new oil pricing system last year. Under the mechanism domestic refined oil prices are adjusted when the moving average of a basket of international crude (Brent, Dubai and Cinta) changes more than 4 percent over a period of 22 working days.
"We can further cut the 4-percent change to 3 percent," said Lin. "Under the formula of changing 3 percent over 14 days, we can change domestic prices more frequently, which would help reduce market speculation."
China adjusted fuel prices eight times in 2009 under the new oil pricing mechanism, with five price hikes and three reductions.
The mechanism, a breakthrough in the country's energy sector reforms, also evoked wide debate on whether the system is reasonable.
"I don't think it is reasonable, as today's gasoline price domestically is even higher than July 2008, when the international crude price hit a record high. How can we say such a phenomenon is reasonable," said an industry insider who did not want to be named.
Some consumers also complained that each price hike was synchronized with the rise in international crude prices but each price cut was always delayed in 2009.
At present 93-octane gasoline, which fuels most of Beijing's taxis and private cars, sells at 6.66 yuan per liter, a historical high.
Many industry insiders believe that global oil prices will fluctuate between $60 and $80 this year. At such a level domestic fuel prices will not go up much, they said.
A sharp increase in global crude prices is unlikely this year. Domestic prices will change in line with that, said Jiang Xinmin, an analyst with the Energy Research Institute under the National Development and Reform Commission. The price would be changed routinely, he said.
