PetroChina See First Fuel Price Increase in 10 Months

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PetroChina See First Fuel Price Increase in 10 Months
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China, the world’s second-biggest oil consumer, raised domestic fuel tariffs for the first time in 10 months to spur production by refiners including China Petroleum & Chemical Corp. and PetroChina Co.

Retail gasoline and diesel cost 300 yuan ($47.58) a metric ton more starting today, the National Development and Reform Commission said on its website yesterday. The increase is equivalent to 0.22 yuan a liter on average nationwide for gasoline and 0.26 yuan a liter for diesel, the nation’s top economic planning agency said.

China Petroleum, known as Sinopec, and PetroChina, the country’s biggest refiners, have urged the government to increase prices after international crude costs rose. The government controls fuel prices to curb inflation, which cooled to a 15-month low of 4.1 percent in December.

“This is definitely good news for the two companies,” Shi Yan, an analyst with UOB-Kay Hian Ltd., said by telephone from Shanghai. “With the increase, Sinopec is nearer to its break- even crude-price level. PetroChina is still some way off because its refineries aren’t as sophisticated.”

PetroChina’s losses from refining were 41.5 billion yuan in the first nine months of 2011 and Sinopec’s were 23.1 billion yuan. PetroChina said Oct. 21 its refining loss may widen to 50 billion yuan for all of 2011, from 23.4 billion in the first half. Sinopec’s six-month refining loss was 12.2 billion yuan.

Introducing Changes

Brent crude rose 0.4 percent to $116.43 a barrel in London trading as of 12:04 a.m. Singapore time. The futures contract has gained 8.4 percent this year.

China must introduce changes to the current pricing method to “rationalize” fuel prices, the NDRC said. The government is studying possible alterations to the pricing mechanism and will seek public opinion after ironing out details, it said.

Changes will involve shortening the pricing cycle, improving the execution of changes and changing the crude grades assessed, it said. The government reduced fuel price increments and delayed some adjustments last year to cushion the impact of rising costs, the NDRC said.

Gasoline and diesel tariffs increased by as much as 550 yuan a ton in 2011, when they should have risen by 1,500 yuan in accordance to the current pricing method, it said.

Energy Security

China may raise retail gasoline and diesel prices by 15 percent in five separate increases to about $4.10 a gallon this year, Gordon Kwan, head of energy research at Mirae Asset Securities Ltd. in Hong Kong, said in a December report.

“The current political and economic situation in the world is relatively complicated, and we cannot ignore the risk of shocks in the oil markets because of the Iranian nuclear crisis,” the NDRC said yesterday. “We face severe challenges in petroleum-supply security.”

The U.S. and allies including the U.K. and the European Union have imposed sanctions on Iran to pressure it to allow inspections of its nuclear program, which Western nations say may be aimed at creating nuclear weapons. Iran, which says it needs nuclear power for civilian purposes, has threatened to block the Strait of Hormuz if its economy is targeted.

The risk premium in oil prices should be two to three times higher than it is now, based on the risk of military conflict in Iran and a potential lack of spare output capacity globally, Steen Jakobsen, chief economist of Saxo Bank A/S, said this month.......READ MORE