China's new oil pricing mechanism

Fuel prices play a significant part in the operating costs of businesses and the economy in general. As a result, the recent reform in the oil pricing mechanism has attracted wide public attention.

Mr. Zhao works as a truck driver in a logistics firm. His tough job sees him drive around 5000 kilometres each month. And rising oil prices in the past have played havoc with his monthly earnings.

Here's the math. The company Zhao works for in Tianjin runs 200 trucks. A 50 cent per litre increase in the oil price leads to an extra 80,000 Yuan in oil costs per month. This translates to almost a million yuan a year.

Mr. Zhao said, "We might have to bear the price rise when international fuel prices go up. I just hope that when international fuel prices go down, there can be a more in-time price cut domestically.

It's not just Mr. Zhao, but other drivers too who are unhappy with the previous oil pricing mechanism.

"There have been times that the domestic oil price went up when the international fuel price had just started to drop."

The previous oil pricing mechanism was launched in 2009. With a long adjustment period, the system failed to link the domestic oil price with the international market efficiently.

Dong Xiucheng, professor of China University of Petroleum, said, "Previously the domestic oil pricing system had a relatively long response period, which caused a lag in price adjustment. The new system provides a more mature solution for fuel prices. It will more efficiently represent price fluctuations in the international market, which is quite necessary."

Under the new oil pricing mechanism, the frequency of oil price adjustment will change from the previous 22 days to 10 days and the minimum limit will be waived off. The idea is to link domestic fuel prices more closely with those in the international market.