The rise was expected and aims to ensure refiners produce enough product to meet the seasonal rise in demand for diesel from farmers planting crops. But it falls well short of a 20 percent rise in Brent crude since the last government-mandated pump price rise in February.
China is working hard to tame inflation and the fuel hike came just a day after China increased benchmark interest rates for the fourth time since October, raising suspicions that data next week may show inflation rose more than expected in March.
The battle with inflation may have kept the government from announcing a bigger rise earlier.
“The hike is not enough and too late,” said Brynjar Bustnes, head of Asia-Pacific oil and gas equity research at J.P. Morgan. “The only way to control oil product demand is through higher prices.”
Brent crude touched $123 a barrel on Wednesday, its highest since 2008. When the world’s second-largest oil consumer last hiked fuel prices, Brent was at around $102.
High prices are pushing up China’s fuel import bill, already rising with increasing fuel consumption. The country’s apparent fuel demand jumped 10.2 percent on the year to 9.53 million barrels per day (bpd) in February, the second-highest on record.
The government will raise retail ceiling prices for gasoline by 500 yuan ($76.43) a ton, or about 5.5 percent, and diesel prices by 400 yuan a ton, or 5 percent, an industry executive told Reuters.
And ex-factory prices for jet kerosene will also be increased by 500 yuan a ton, or about 7-8 percent, according to the source.
The rise will offer only temporary relief to Chinese refiners such as Sinopec Corp. and PetroChina, analysts said.
“Refiners may take a breath in April as they process oil imported one or two months earlier,” said one analyst with a foreign securities firm in Shanghai. “But they will face refining losses again when they process oil bought recently.”
“This move is not sufficient to restore positive refining margins for the sector,” said Gordon Kwan, head of energy research at Mirae Asset Securities in Hong Kong.
China last raise fuel prices by around 4 percent on Feb. 20 for similar reasons - worried about a repeat of diesel supply shortages that forced rationing late last year.
Narrowing refining margins have in recent weeks spurred a rare shortage of gasoline, as state-run plants shifted to more lucrative products while the more margin-sensitive local, independent refineries slashed productions to cut losses.
The bigger percentage rise for gasoline this time indicated that the government was trying to ease the supply shortage, analysts said.
Officials at state refiners said in early March that their plants were operating in the red and warned losses would widen in coming months without further fuel price increases.
And main plants were told by the government to cut or halt overseas shipments of gasoline and diesel in April, extending a curb since earlier this year to ease tight supplies in the domestic market.
The 22-day moving average price of Brent, Dubai and Cinta crude oil, on which China’s fuel pricing is believed to be based, has gained more than 14 percent since China’s last fuel price hike on Feb. 20, according to consultancy C1 Energy, far above a 4-percent rise that in theory should trigger a fresh fuel price increase.
