China on Tuesday suspended its regular oil products pricing adjustment due to the volatility in international crude prices, the first time it has done so since bringing in the current pricing system in March 2013.
Under the mechanism, China's top planning body, the National Development and Reform Commission, can suspend or delay oil product pricing adjustments if inflation increases dramatically, if an emergency occurs, or when international oil prices are hugely volatile over a short period.
During the last 10 working days, front-month ICE Brent crude futures dropped $6.52/barrel or 15%, from $44.44/b on December 1 to $37.92/b on Monday.
Domestic oil products guidance prices were last adjusted on December 1, with gasoline falling by Yuan 145/mt and gasoil down by Yuan 140/mt.
It had been widely expected that the guidance prices for gasoil and gasoline would be cut by around Yuan 170/mt ($26.33/mt), based on the NDRC's published pricing mechanism. NDRC said on its website that keeping domestic oil products prices unchanged would help to slow oil consumption growth in the country.
It added that it will seek to make improvements to the pricing mechanism given the new market environment that has emerged.
Under the oil product pricing mechanism, the NDRC sets the country's retail gasoline and gasoil ceiling prices every 10 working days in line with international crude price fluctuations, unless the resulting price change is less than Yuan 50/mt or in exceptional circumstances.
In such instances, the adjustment is rolled over and included in the next price change.
The current oil pricing mechanism, introduced in March 2013, is intended to help refiners cope with losses incurred by the government's cap on oil product prices, which were exacerbated when the government previously reviewed prices every 22 days and at times refused to adjust prices due to inflationary concerns.
On October 12, the State Council announced a plan to set up market-oriented price mechanisms for all commodities by 2020, with liberalization of gasoline and gasoil prices at a suitable moment.