The State will not set the monthly benchmark price for diesel and gasoline in hopes of discouraging speculation in the domestic oil market, according to a circular released last night by the State Development Planning Commission.

The circular did say the State will consider the condition of the domestic market when adjusting the benchmark price.

In the past the benchmark price was decided only by the rates on the Singapore market.

But in the circular, the commission said it would now adjust the benchmark price for refined oil products when the average price on Singapore, Rotterdam and New York changes by "a certain margin.''

The circular did not specify what the margin should be. But it said China would base the factory price of diesel and gasoline on the average free on board prices of the top three oil trading hubs listed above.

A Guotai Jun'an Securities analyst said the average price from the three markets, instead of the Singapore market alone, better mirrors the international markets.

Recently, Li Yizhong, president of Sinopec, the largest refiner in Asia, complained to the People's Daily that the past pricing mechanism was easy to manipulate.

"But under the renewed pricing mechanism, speculators can hardly anticipate when the benchmark price will change,'' the Guotai Jun'an Securities analyst told China Daily.

The circular said the retail price will be allowed to rise or drop by 8 percent from the benchmark price, rather than the 5 per cent used in the past.

An official from the pricing department of Sinopec said the broader floating range will give more freedom to Sinopec and PetroChina, the nation's second largest refiner, to decide retail prices.

"It is absolutely good news for us because the retail price will be more flexible,'' the official said.

To help keep oil prices from fluctuating however, the circular said the commission will set a range for gas and diesel prices to stay within.

(China Daily 10/17/2001)