Beijing intervenes to limit fuel price increases in unprecedented move
Officials have dusted off a 13-year-old emergency power to shield consumers from the full brunt of surging oil prices.
On March 23, the macro planner (NDRC) announced temporary price controls as part of its updated national fuel price ceilings, limiting gasoline and diesel price increases to roughly half of expected levels.
The deets: Folks still face an over-10 % price hike at the pump – but that's a far cry from the roughly 25% increase that the NDRC's pricing formula would usually dictate.
- Gasoline prices rose RMB 1,160 (instead of RMB 2,205) to reach RMB 9,905 per metric ton.
- Diesel rose RMB 1,115 (instead of RMB 2,120) to reach RMB 8,835 per metric ton.
ICYDK: The NDRC recalculates China's state-set retail fuel price ceilings every 10 working days, typically based on a weighted average of international crude prices.
- The 10-day average insulates China against extreme volatility, but as long as average crude prices remain between USD 40-130 per barrel, the NDRC just passes them through.
Until now, that is. The NDRC's new price controls stem from a 2013 carveout that grants the agency discretionary power to intervene even when prices are below the USD 130 threshold.
- This is the first time the NDRC has used this power – including in 2022, when oil prices soared following Russia's invasion of Ukraine.
What to watch: The NDRC will announce the next update to fuel price ceilings in 10 working days.
- That will be our next indication of Beijing's appetite for further intervention.
Our best guess: We're in uncharted territory, which makes it hard to predict what Beijing will do next.
- That said, officials' top priority will be keeping low- and middle-income Chinese in the black, and ensuring critical industries get the fuel they need.
- If an off-ramp emerges in Iran and crude prices begin to fall, we expect the NDRC to continue moderating prices long enough to engineer a smooth return to the formula.