China to replace oil product pricing system

China will replace its benchmark pricing for oil products by a ceiling retail price under a plan to reform its oil product price formation mechanism. The 21st Century Business Herald quoted a source saying that the ceiling retail price will be based on ex-factory price plus logistic cost and the threshold of deducting processing profit margin will be lifted from US$50 per barrel to US$80 per barrel. China’s benchmark price mechanism allows oil firms to adjust retail prices up or down 8%, while the ceiling price mechanism has no limit on downward adjustment. Sinopec and PetroChina have been charging 8% higher than the current benchmark price, suggesting there is at most a space of 16% for them to cut their retail price. (November 27, 2008)