Market pricing of oil

The adjustment of the retail petrol pricing mechanism is a step toward a more market-oriented supply and demand relationship, which will benefit the country's drive to raise energy use efficiency.

The policymaking National Development and Reform Commission announced on Tuesday a new pricing system that tracks changes in the global market more closely.

The previous pricing allowed an adjustment of the retail price when the moving average of international crude prices fluctuates beyond 4 percent within 22 consecutive working days. Now the period is shortened to 10 days, with the 4-percent threshold scrapped.

The new pricing method means China's retail prices will be subject to more frequent changes as they adjust to international oil price movements.

Domestic oil refiners will be the first to benefit from the reform. As retail prices are more flexible and less influenced by administrative power, refiners will be able to pass on cost increases to consumers. The nation as a whole will also benefit from the move, as it will promote greater energy efficiency.

China is the world's second-largest oil consumer behind the United States, according to the International Energy Agency, and its oil imports have grown at a fast pace, posing risks to its energy security given the volatile geopolitical situation in the oil-producing regions and the fact that China is nowhere near energy self-sufficiency.

Until the early 1990s, China was a net oil exporter. By 2009, it had become the second-largest net importer of oil, a rapid change that has forced China to tap more oil import sources and seek to improve its energy efficiency.

Price is the most effective factor influencing market supply and demand. After the reform, retail prices may fluctuate more, but these ups and downs will better reflect the real cost of oil consumption and therefore lead to a more balanced supply and demand relationship.

It will be painful for oil consumers to adapt to the new changes, but there is no gain without this pain. It will benefit the country's drive to save energy and reduce resource consumption.

China has been pushing forward its green drive in recent years, and it has earmarked large sums of money and devised a good number of policies to encourage new energy projects and programs.

The market-oriented pricing reform, together with technological innovation, will provide a boost for that green process.

(China Daily 03/29/2013 page8)