China raises retail fuel prices as crude strengthens

Chinese retail fuel prices have increased for the first time this year after global crude markets strengthened, ending a three-month period of price stability.

Top planning body the NDRC increased pump prices for gasoline and diesel by 120 yuan/t ($2.01/bl) and Yn110/t ($2.08/bl) respectively yesterday, as the average price of its crude basket — which includes Ice Brent, DME Oman and Nymex WTI futures — rose above the $40/bl floor price, to about $40.70/bl.

The government caps domestic retail prices for gasoline and diesel using a cost-plus system, where the crude basket represents domestic refiners' feedstock price. It adjusts pump prices based on the change in a rolling average of crude costs every 10 working days, halting price cuts when the basket falls below the price floor $40/bl to protect refiners' margins.

The NDRC last adjusted retail prices on 17 March, when it slashed pump prices for gasoline and diesel by Yn1,015/t and Yn975/t respectively as international crude prices slumped. The crude basket has remained below China's price floor since then.

The higher retail price caps helped send today's spot gasoline and diesel prices in south China's Pearl river delta region up by $1.88/bl to $51.16/bl, and by $1.18/bl to $69.94/bl, respectively from yesterday.

Refiners in Shandong province only raised their gasoline and diesel prices by a slight 25¢/bl and 40¢/bl respectively from a day earlier. Shandong refiners sell much of their fuel to other provinces and have been hit by persistent heavy rains in south China that gave reduced domestic fuel demand and deliveries since early June.

Gasoline and diesel prices in Shandong province have fallen by almost 10pc since 10 June. Gasoline has dropped by $3.10/bl to $34.68/bl today, while diesel prices are down by $5.05/bl to $53.65/bl over the period. Gasoline crack spreads in the province have shrunk by more than $5/bl to around minus $10/bl, while diesel crack spreads have almost halved to around $9/bl.

Weaker domestic consumption and rising overseas demand started to draw China's fuel surplus into international markets in mid-June. Gasoline exports rebounded sharply to nearly 400,000 b/d in June after plunging in May, data from oil analytics firm Vortexa show, with Singapore prices at near parity with Chinese prices.