China shocks with 18 percent fuel price rise

BEIJING (Reuters) - China raised retail gasoline and diesel prices on Thursday by up to 18 percent, a move that threatens to stoke domestic angst over decade-high inflation less than two months before Beijing hosts Olympics games.

A customer watches a petrol station attendant fill her car's petrol tank before the midnight deadline for price rises in central Beijing June 19, 2008. REUTERS/David Gray

The increase in regulated fuel prices, China’s first hike in eight months and its sharpest ever one-off rise, sent oil prices down by as much as $3 a barrel as dealers bet it might help curb soaring demand from the world’s second-largest oil user.

However, U.S.-listed shares in top refiner Sinopec surged over 8 percent as the increase will aid their profits.

The rise shows China following its neighbors from India to Indonesia in bowing to the pressure of near $140 crude oil.

It comes just days before a crisis meeting of the world’s biggest oil producers and consumers in Jeddah, Saudi Arabia, where they hope to draw up plans to combat oil’s relentless rally, blamed by some on cheap fuel in countries like China.

Most analysts had expected Beijing to hold off on an unpopular fuel price rise until after the Olympics in order to keep a leash on inflation

Prices for gasoline and diesel prices will rise by 1,000 yuan ($145.5) per tonne each effective from midnight, state media reported on Thursday evening.

“This is very significant, a watershed move which suggests the Chinese government is prepared to risk unpopularity to curb the growth in domestic fuel demand. We’ve already seen other Asian economies cut subsidies and the one big hold out, until now, was China,” said John Kemp, commodities economist at RBS Sempra in London.

China also raised jet fuel prices by 1,500 yuan per tonne.

Slideshow ( 6 images )

“Global crude prices have been rising sharply and Chinese domestic fuel prices have lagged behind. The price difference has highlighted the contradiction between demand and supply,” state television said, quoting the National Development and Reform Commission.

Beijing will also raise average electricity tariffs by 0.025 yuan/kwh or about 4.7 percent on average, a rise that will primarily affect industrial and commercial users, the NDRC, China’s top planning body, said on its website.

The rise, which will be effective from July 1, is its first broad increase in years and will bolster power companies struggling with the soaring cost of coal, which generates some three quarters of China’s electricity. Beijing meantime announced that it will freeze thermal coal prices, which would further safeguard profits for power firms to help avert brownouts as peak summer use nears.


Refiners Sinopec and number two PetroChina, which is less reliant on costly imported crude, will get an immediate boost from the price increase as they have faced years of losses from paying rising global prices for crude and selling refined gasoline and diesel at below-cost domestic rates.

Oil prices fell as much as $3 a barrel immediately after the news on worries that demand from the world’s second-largest oil user -- where prices have risen only once in the past two years, a 10 percent hike in November -- would be hit.

China’s rapid demand growth was one of the catalysts for oil’s surge from $20 six years ago to a record high of nearly $140 a barrel earlier this week.

The latest increase took many market watchers by surprise as Beijing has repeatedly vowed to rule out “near-term” price increases to battle high inflation and avoid social unrest barely two months away from the Beijing Olympics.

Fearful of stirring popular resentment, Beijing pledged subsidies to weaker groups such as farmers, fishermen and cab drivers, right after the announcement of the price hike.

In Beijing and Shanghai, motorists queued for gasoline at petrol stations on Thursday night as word of the price hike leaked out. Police stood by at one Beijing petrol station.

At least one station told customers that it could not serve them until the price hike took effect at midnight, prompting an altercation between staff at the station and a group of angry motorists.

additional reporting by Simon Rabinovitch; editing by James Jukwey