China ups fuel prices

China will increase retail gasoline and diesel prices by 5-5.5 percent to new record highs from Thursday, the government said, easing the burden of state refiners who face international oil prices at 2.5-year highs. "The current domestic inflationary pressures are still large," the National Development & Reform Commission (NDRC) said on its website www.ndrc.gov.cn.
"Most institutions predict that the impact of the political instability in Libya on the oil market will not be eliminated in the short term. Combined with the possible significant increase in oil demand from Japan from its post-disaster reconstruction and replacement of nuclear power, oil prices in the international market will continue to show strong momentum." The fuel price rise was expected and aims to ensure refiners produce enough to meet the seasonal rise in demand for diesel from farmers planting crops. But it falls well short of a 20 percent rise in Brent crude since the last government-mandated pump price rise in February.
China is working to tame inflation. The fuel increase came a day after it increased benchmark interest rates for the fourth time since October, raising suspicions that data next week may show inflation rose more than expected in March. The battle with inflation may have kept the government from announcing a bigger rise earlier. "The hike is not enough and too late," said Brynjar Bustnes, head of Asia-Pacific oil and gas equity research at J.P. Morgan. "The only way to control oil product demand is through higher prices." Brent crude touched $123 a barrel on Wednesday, its highest since 2008. When the world's second-largest oil consumer last increased fuel prices, Brent was at around $102.
High prices are pushing up China's fuel import bill, already rising with increasing consumption. The country's apparent fuel demand jumped 10.2 percent on the year to 9.53 million barrels per day (bpd) in February. The government will raise retail ceiling prices for gasoline by 500 yuan ($76.43) a tonne, or about 5.5 percent, and diesel prices by 400 yuan a tonne, or 5 percent, an industry executive told Reuters. And ex-factory prices for jet kerosene will be increased by 500 yuan a tonne, or about 7-8 percent, according to the source.
The rise will offer only temporary relief to Chinese refiners such as Sinopec Corp and PetroChina, analysts said. China last raised fuel prices by around 4 percent on February 20 for similar reasons - worries about a repeat of diesel supply shortages that forced rationing late last year. Narrowing refining margins have in recent weeks spurred a rare shortage of gasoline, as state-run plants shifted to more lucrative products while the more margin-sensitive local, independent refineries slashed production to cut losses.