China to Revise Oil Pricing Mechanism to Closely Reflect Global Price Movements

China is considering to make changes to its oil pricing mechanism by both shortening the price review period and removing the price fluctuation limitation of a basket of crudes used to adjust retail oil product prices, the official Xinhua news agency reported Wednesday, citing Zhang Ping, head of the National Development and Reform Commission.

"The current mechanism fails to timely reflect the volatility in international crude prices," Zhang was cited as saying at a press conference in Beijing.

Under the current pricing mechanism, in place since 2009, the NDRC recommends adjusting regulated prices of gasoline and gasoil if the 22-day rolling average of a basket of Cinta, Dubai and Brent benchmark crude prices rise or fall by more than 4% from the previous price adjustment. The recommendation is then given to the government for approval.

The plan to reform the current oil pricing mechanism will shorten the 22-working day price review period of the basket of crudes and remove the 4% fluctuation limit, Zhang said.

NDRC on February 24 raised retail gasoil and gasoline prices by Yuan 290/mt ($46.51/mt) and Yuan 300/mt, respectively, the first price adjustment since November 16, 2012. But the average price of the basket of benchmark crudes started to decline after that, which led to widespread complaints about the mechanism.

There were talks of a new pricing system circulating in the market since last year, with some suggesting that the rolling-average period would be shortened to 10 working days from 22 and that the Indonesian Cinta crude benchmark among the basket of crudes would be replaced with the US' West Texas Intermediate crude benchmark, Platts previously reported.