China unlikely to adjust fuel pricing mechanism despite soaring crude freight costs
China is unlikely to adjust its oil product pricing mechanism despite higher freight and insurance costs for crude cargoes, which are discouraging refining activity, two sources at think tanks close to the matter told Platts on the sidelines of APPEC Sept. 8-10. “With China’s transportation fuel demand having peaked and the country accelerating its electrification ...
China appears set to maintain its current oil product pricing mechanism, despite escalating freight and insurance costs for crude shipments that are curbing refining operations, according to sources familiar with the matter. A spokesperson from a national think tank explained that China's transportation fuel demand has reached its peak, and the nation's push for electrification has overshadowed the oil product pricing mechanism's importance in recent Five-Year Plans.
The mechanism, implemented in 2013, periodically adjusts retail ceiling prices for gasoline and gasoil based on a basket of benchmark crude prices, which are largely weighted towards China's crude import profile. Minor factors such as freight and insurance costs, currently estimated at around $30 per barrel, play a relatively insignificant role in the pricing formula.
The surge in freight and insurance premiums is significantly impacting refining margins, with some state-run refiners reporting costs as high as $20 per barrel. Despite this, the Chinese government has capped domestic gasoline and gasoil price increases at 260 Yuan/mt and 250 Yuan/mt, respectively, a move designed to mitigate inflationary pressures when international crude prices surpass $80 per barrel.
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