China May Raise Retail Fuel Prices as Early as Weekend

China will likely hike retail fuel prices by at least 5% as early as this weekend to reflect rising international oil prices. The government isn't likely to delay the move, as it has in the past on inflation concerns, as consumer price index growth has been slowing this year.

Higher prices for gasoline and especially diesel will help China's oil majors improve their bottom lines, with diesel demand likely to rise during the harvest season, which is just around the corner.

"We think the government is very likely to raise the refined oil price as soon as Sunday," said Hu Huichen, an oil analyst with Shandong-based energy consultancy Chem99.

The value of China's crude reference basket increased by 8.36% between Aug. 8 and Thursday, data from energy consultancy ICIS C1 showed.

Under China's oil product pricing system, domestic fuel prices may be adjusted when the moving average the basket changes more than 4% over a period of 22 working days.

The rate of hike will probably be between 450 yuan and CNY520 per metric ton for both diesel and gasoline, according to Chem99 and ICIS C1.

This represents increases of 5.0%-5.7% and 5.4%-6.3% for gasoline and diesel, respectively, based on Dow Jones Newswires calculations.

"The pressure on domestic inflation has eased," North Square Blue Oak energy analyst Tian Miao said.

China's CPI growth has slowed for five consecutive months, easing sharply in July to the lowest level in 2 1/2 years, to 1.8%. China's August official CPI data is due to be released on Sunday. It will accelerate slightly, to 2%, according to the median forecast of 13 economists polled by Dow Jones Newswires.

Chem99's Ms. Hu said the government is well-disposed to helping refiners improve their profit margins to encourage them to sell more refined oil products to "maintain market supply."

PetroChina Co. (>> PetroChina Company Limited)and China Petroleum & Chemical Corp. (>> China Petroleum & Chemical Corporation), known as Sinopec Corp. previously said they booked combined refining losses of CNY19.57 billion ($3.1 billion) in the first quarter as a result of higher international crude oil prices.

If the government does announce the price hikes this weekend, it would be the second time in two months that it followed the its price-change guidelines punctually once the 4% threshold was tripped.

Chem99 has said that punctual change of retail fuel prices is an indication that the government is prepared to reform its pricing mechanism.

The government last hiked fuel prices on Aug. 10, raising the gasoline price by 390 yuan/ton and the diesel price by 370 yuan/ton.