Center

Gov't expected to cut cost of oil

By Wang Ying (China Daily)
Updated: 2006-09-26 13:49

The latest global oil price plunge, if extended for several months, may prompt the government to cut domestic oil product prices to reflect the international market, according to industry analysts and traders.

Oil prices dropped below US$60 a barrel yesterday, their lowest for six-months, as supply threats from Iran and Nigeria diminished alongside fears about this year's Atlantic hurricane season, insiders said.

Crude oil for November delivery fell by as much as US$1.03, or 1.7 per cent, to US$59.52 a barrel in after-hours electronic trading on the New York Mercantile Exchange. Oil has fallen 23 per cent from a record US$78.40 on July 14.

Analysts yesterday said if global crude prices continue to decline for an extended period, the government will have to reduce the domestic prices of major oil products such as gasoline and diesel to float with the international level.

"If (global) crude prices remain at a relatively low level for another couple of months, the government will possibly readjust domestic oil product prices," said Gong Jinshuang, a senior analyst with the research arm of China National Petroleum Corp, the nation's biggest oil company.

But the long-term trend of oil prices is still unpredictable, Gong added.
"Under the current circumstances, the government will have to interfere with the pricing mechanism (of oil products) to ensure stable market supply if global crude prices go up or down to a large extent," Gong said.

The National Development and Reform Commission (NDRC), the nation's top economic planning body, raised domestic oil product prices twice in March and May in line with soaring global oil prices. China currently controls the prices of major oil products like gasoline, diesel and aviation oil due to worries over supply fluctuations and inflation, although it has vowed to make the oil pricing system more market-based.