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4th straight fall to bring window period for oil pricing reform

Source: Economic Information Daily | Date: Dec. 9

  • Crude oil futures tumbled to their lowest in nearly seven years on Dec. 7 after OPEC failed to address a growing supply glut. Brent and U.S. crude futures nearly fell as much 6% in belated reaction to the Organization of the Petroleum Exporting Countries' (OPEC) policy meeting which ended without an agreement to lower production.

  • In China, according to the existing refined oil pricing mechanism, China is expected to lower prices of diesel and gasoline oil by RMB 75/tonne on Dec. 15. It will be the second time that China's oil prices fall for four times in a row.

  • Undoubtedly, after five times of reforms, China's refined oil price mechanism has become more sensitive in reflecting global oil price changes. However, there are still obvious differences in the range of oil price changes between China and the global market.

  • China is the world's second largest crude oil consumption country and the world's fourth largest crude oil production country. However, the price is not determined by market changes, but by the government. This pricing mechanism has affected China's oil market, as gas stations have received huge profits while beneficiary parts in the middle of the oil industry chain even suffer losses.

  • The latest oil price decline is expected bring a golden opportunity for China's oil pricing reform. Oil prices tend to stay at a low level, indicating lower costs for pricing reform. In addition, economic slowdown can also benefit the oil pricing reform to certain degree.