Reform of Fuel-price System in Works

China is working on a reform of the gasoline and diesel pricing mechanism to better reflect international crude costs, the head of the country's top economic planning agency said on Wednesday.

China currently adjusts its retail gasoline and diesel prices based on consideration of the 22-day moving average cost of a basket of crude grades, namely Brent, Dubai and Indonesia's Cinta.

Zhang Ping, head of the National Development and Reform Commission, said the 22-day pricing adjustment period is too long and cannot reflect frequent changes of international crude prices, so the country is considering cutting the period.

Zhang also said the current mechanism, which requires authorities to adjust the country's fuel prices when international prices fluctuate by 4 percent, has to be changed.

"The pricing mechanism should be more flexible," he said. "We should adjust the prices accordingly, whether the change of the moving average costs reaches 4 percent or not."

The pricing adjustment period may be reduced to less than 10 days, said Han Jingyuan, an analyst at the oil department of JYD Online, a bulk commodity consultancy in Beijing.

"The gasoline and diesel price changes will be on a regular basis and more timely," she said.

"Plus, considering the exchange rates and public opinion, the domestic pricing mechanism should also ensure that the price changes will not occur too frequently."

She said the government needs to curb speculation on price rises.

The new mechanism may learn from the current gasoline and diesel pricing method in Taiwan, which is based on weekly price changes of Brent and Dubai crude costs, according to ICIS C1 Energy, a Shanghai-based energy consultancy.

"The 22-day period should be shorter, and the mechanism needs more transparency," said Zhang Laibin, president of the China University of Petroleum on Tuesday, one day before the NDRC's statement.

In the past year, China adjusted retail gasoline and diesel prices eight times - four increases, and four cuts.

The latest price increase was on Feb 24, many days later than the market expected. It raised the gasoline price by 300 yuan ($48) a metric ton and diesel by 290 yuan a ton.

Zhang said the pricing adjustment window period was on Feb 9 and was delayed because of the Lunar New Year holiday.

Han, the analyst, said the reform is a step in the right direction, but fuel prices should eventually be decided by the market, not government.

Beijing Petroleum Exchange is considering establishing a refined oil spot-trading platform on which customers can make purchase orders before picking up the gasoline later.

Zhao Ying, interim spokeswomen for the exchange, said there is not a timetable.

"There is a lot of work to do before the launch of the platform," she said.