Industry insiders say the move follows the trading state of the international market on Brent, Cinta and Dubai oil prices. These oil products have witnessed a 4 percent downward fluctuation since the NDRC last cut the price of petrol and gas on June 7. The latest market figures collected by International Finance indicate that the downward fluctuation has increased to 9.45 percent for Brent, Cinta and Dubai crude, which many believe prompted this round of price cuts.
However, the NDRC has not yet clarified the scale of the price cuts. Leading market analysts believe the cuts will amount to no less than 350 yuan per ton. Analyst Wang Jintao from the Zhongyu Consultancy says the price cut will probably be around 480 yuan per ton, in reference to the fluctuation rates of Brent, Cinta and Dubai.
The current predictions are vastly different from some earlier forecasts, which ranged from 600 yuan to 700 yuan per ton. Analyst Liao Kaishun from Xiwang Energy says the forecasts have been revised because the fluctuation rates on the three oil products indicate that the market is warming up slightly. Furthermore, he believes that the NDRC is probably unwilling to damage the profits of major Chinese oil producers.
Consumers' expectations should remain temperate however, as most analysts agree that apart from certain special discounts, the retail price of the standard No. 93 petrol in most big cities will remain at 7 yuan per liter, if not higher. The prospect of petrol prices returning to 6 yuan per liter is extremely unlikely, mainly because the wholesale price of petrol and diesel in the Chinese market remains firmly in the hands of the major producers. Solid demand only helps to maintain the high price of fuel.
The NDRC however, has played down the prospect of a quick reform of the pricing mechanism, saying that the current model of "22 workdays with a 4 percent fluctuation reference to international markets" works well at the moment.
The NDRC has implied that there could be an improvement in terms of shortening the time and scaling back the rate of difference with international markets, but carrying out a substantial change in the pricing mechanism would require serious deliberation on the issue of the reform's timing.
The NDRC will base its timing for a reform mainly on price changes within the international market. By pegging prices within the Chinese market against the international market, the organization argues that reform of the pricing mechanism is only safe when the price on the international market remains moderately profitable for Chinese oil producers.
Earlier in the year, the NDRC made it clear that any reform would be strictly guided by the principle of "shortening the pricing time, improving the pricing mechanism and increasing transparency." A reform proposal has been submitted to the State Council.
But many economists do not agree with the choice of timing for the reform. Professor Lin Boqiang at the Institute of Energy and Economic Studies in Xiamen University says the aim of reform is to have domestic prices reflect the international market closely; therefore, rather than basing the timing for a reform on the profitability of the international market, reform should occur when the international market price is stable or is decreasing steadily.
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