National Development and Reform Commission Temporarily Adjusts Finished Oil Prices; How to Assess Future Trends?

CNR Beijing, March 24 — (Reporter Cai Jun) According to the Voice of Economy of China Central Radio and Television, the National Development and Reform Commission has announced that starting from 24:00 on March 23, domestic gasoline and diesel prices will be adjusted. The prices of domestic gasoline and diesel will increase by 1,160 yuan and 1,115 yuan per ton, respectively. According to current pricing mechanisms, this adjustment should have been 2,205 yuan and 2,120 yuan per ton. To mitigate the impact of the abnormal rise in international oil prices, reduce the burden on downstream users, and ensure stable economic and social development, the NDRC has implemented temporary regulatory measures on domestic refined oil prices while maintaining the existing price mechanism framework. After the adjustment, the increase per ton is about 1,045 yuan and 1,005 yuan less than the theoretical increase, which is roughly a 0.85 yuan per liter increase less for nationwide average gasoline and diesel prices. Based on a 50 to 60-liter tank, filling up a tank after the regulation will save about 40 to 50 yuan.

Feng Yongsheng, Deputy Director of the Energy Economics Research Center at the Chinese Academy of Social Sciences, explained that domestic gasoline and diesel prices are linked to a basket of international crude oil prices. Price adjustments are influenced by multiple factors, not just a single international crude oil price. Additionally, the adjustment magnitude is not simply determined by the change in international crude oil prices at specific times or days but depends on the comparison between the average price of the basket of international crude oil over the ten working days before the adjustment and the ten days prior to the last adjustment. When the basket’s international crude oil price exceeds $130 per barrel or drops below $40, the government will take price regulation measures.

Recently, due to escalating conflicts involving the US, Israel, and Iran, international crude oil prices have surged significantly, with increases generally over 40%. In particular, crude oil prices in the Middle East have rapidly risen above $150 per barrel, hitting new record highs and increasing by over 130% compared to before the conflict. The rise in international crude oil prices directly raises China’s import and consumption costs. Feng Yongsheng stated that this temporary regulation is a timely and effective response to abnormal fluctuations in the international market, helping to absorb external shocks and maintain a basic balance in domestic supply and demand without causing significant impacts on the economy, society, or people’s livelihoods.

It is also understood that the current domestic refined oil pricing mechanism sets a price regulation ceiling at $130 per barrel. If the basket of international crude oil prices continues to rise sharply and exceeds $130, the price regulation ceiling will be triggered. For the portion exceeding the ceiling, the maximum retail prices of domestic gasoline and diesel will not increase or will increase less. To stabilize supply, the government may also implement some fiscal and tax support policies.

Chen Li, Chief Economist at Chuan Cai Securities, analyzed that the surge in oil prices will trigger a re-pricing of almost all assets. From the transmission chain perspective, oil prices influence inflation levels, which in turn constrain the central bank’s monetary easing space, ultimately affecting risk-free rates like the US dollar, and fundamentally impacting asset pricing. Currently, the most immediate effects are seen in the energy sector and related derivatives, such as boosting investment in the coal sector. Coal chemical industry is also a very noteworthy industry at present. Meanwhile, sustained oil price increases will drive up shipping and logistics costs, and related sectors such as fertilizers used in agriculture will also be affected by this market dynamic.

An Jie, Investment Advisor at Everbright Securities, advised investors to pay close attention to news developments. If high oil prices persist for too long, they could have a significant impact on the global economy. Additionally, technology stocks, which tend to have high valuations and large capital needs, will be more vulnerable to shocks. Investors are recommended to choose stocks with high dividends and low P/E ratios, especially during the annual report release period, as these stocks tend to have better risk resistance. Some new energy sectors may also develop relatively independently during this period.