[URL="http://www.nytimes.com/reuters/business/business-china-oil-prices.html?_r=1&oref=slogin"]NY TIMES[/URL]

June 19, 2008

China Shocks With 18 Percent Fuel Price Rise; Oil Falls


Filed at 12:03 p.m. ET

BEIJING (Reuters) - China raised retail gasoline and diesel prices on Thursday by up to 18 percent, a move that threatens to stoke domestic angst over decade-high inflation less than two months before Beijing hosts Olympics games.

The increase in regulated fuel prices, China's first hike in eight months and its sharpest ever one-off rise, sent oil prices down by as much as $3 a barrel as dealers bet it might help curb soaring demand.

However, U.S.-listed shares in top refiner Sinopec surged over 8 percent as the increase will aid their profits.

The rise shows China following its neighbors from India to Indonesia in bowing to the pressure of near $140 crude oil.

Most analysts had expected Beijing to hold off on an unpopular fuel price rise until after the Olympics in order to keep a leash on inflation, already at a near 12-year high.

"Global crude prices have been rising sharply and Chinese domestic fuel prices have lagged behind. The price difference has highlighted the contradiction between demand and supply," state television said, quoting the National Development and Reform Commission.

Prices for gasoline and diesel prices will rise by 1,000 yuan ($145.5) per tonne each effective from midnight, state media reported on Thursday evening.

China will also raise average electricity tariffs by 0.025 yuan/kwh or about 4.7 percent on average, a rise that will primarily affect industrial and commercial users, the NDRC, China's top planning body, said on its website.

The rise, which will be effective from July 1, is its first broad increase in years and will bolster power companies struggling with the soaring cost of coal, which generates some three quarters of China's electricity.


Refiners Sinopec and number two PetroChina, which is less reliant on costly imported crude, will get an immediate boost from the price increase as they have faced years of losses from paying rising global prices for crude and selling refined gasoline and diesel at below-cost domestic rates.

Oil prices fell as much as $3 a barrel immediately after the news on worries that demand from the world's second-largest oil user -- where prices have risen only once in the past two years, a 10 percent hike in November -- would be hit.

China's rapid demand growth was one of the catalysts for oil's surge from $20 six years ago to a record high of nearly $140 a barrel earlier this week.

The move in November took many market watchers by surprise as Beijing has repeatedly vowed to rule out "near-term" price increases to battle high inflation and avoid social unrest barely two months away from the Beijing Olympics.

China also raised jet fuel prices by 1,500 yuan per tonne.

In Beijing and Shanghai, motorists queued for gasoline at petrol stations on Thursday night as word of the price hike leaked out. Police stood by at one Beijing petrol station.

At least one station told customers that it could not serve them until the price hike took effect at midnight, prompting an altercation between staff at the station and a group of angry motorists.

(Reporting by Carolyn Qu and Chen Aizhu; editing by James Jukwey)