China cuts fuel prices by 3.3% on public concern

China, the world's second-biggest energy user, cut gasoline and diesel prices by at least 3.3 percent today after three increases since March triggered public concern that fuel costs are too high.

Pump prices for 90 octane gasoline will be set at a maximum of 5.7 yuan ($0.83) a liter, or about $3.14 a gallon, in Beijing, the National Development and Reform Commission said in a statement on its Web site. Prices were adjusted to reflect the decline in global crude prices, said China's top planning agency.

Today's price cut, the second this year, will help to lower costs for manufacturers as China targets 8 percent economic growth this year to generate jobs and maintain social stability. The government's third increase on June 30 sparked "widespread public debate," according to the official Xinhua News Agency, after China's gasoline prices exceeded those in the U.S., the world's largest oil user.

"This move is to some extent signaling that the Chinese government is bowing to public pressure in adjusting fuel prices," Wang Jing, the chief oil analyst at Orient Securities Ltd., said by mobile phone in Shanghai. "It also reassures the industry that the country will stick to the fuel pricing formula."

The Chinese government controls prices under a mechanism that takes into account crude-oil costs, taxes and a profit for refiners, including China Petroleum & Chemical Corp. and PetroChina Co., the nation's biggest fuel producers. China may adjust fuel prices when crude-oil costs change more than 4 percent over 22 working days, the reform commission said in May.

PetroChina, Sinopec

"The latest fuel price cuts are unlikely to lower shares of the two companies as the move shows the government is strictly enforcing the pricing mechanism and will allow oil companies to pass on higher costs if crude prices rise," said Grace Liu, an analyst at Guotai Junan Securities in Shenzhen.

PetroChina gained 1.8 percent to HK$9.49 in Hong Kong trading before the fuel price announcement while Sinopec, as China Petroleum is known, climbed 0.7 percent to HK$7.14.

The gasoline price charged by refiners will fall by 3.3 percent to 6,510 yuan a ton, or 70 U.S. cents a liter, starting tomorrow and the diesel price will drop by 3.7 percent to 5,770 yuan a ton, the National Development and Reform Commission said today. Jet fuel prices will be reduced by 5.5 percent to 4,770 yuan a ton. The price of gasoline in Beijing, set at $3.14 a gallon, compares with an average of $2.49 a gallon in the U.S.

'Public's Misconception'

Gasoline and diesel prices have risen by an average 24 percent this year, according to calculations made by Bloomberg. China cut prices by as much as 3 percent in January.

About 94.3 percent of more than 260,000 people surveyed by Chinese Web portal sina.com thought fuel prices are too high, Xinhua said on July 1. The reform commission said in a statement on July 14 that the public have a "misconception" about the government's fuel-pricing mechanism.

Fuel prices have been raised by "no more than 25 percent" since mid-January, compared with a 70 percent gain in global oil prices during the period, the commission said in the statement.