The National Development and Reform Commission (NDRC) of China has introduced a new pricing mechanism for refined oil products, effective immediately and setting a minimum price level of US$40/bbl for oil products sold by Chinese refiners.
This new price mechanism is likely to be neutral for refiners in a context of falling global crude oil prices (currently below US$30/bbl). The NDRC, which previously allowed refiners to charge higher prices on their oil products after upgrading their facilities to higher quality products, aimed at avoiding excessively low refined product prices, that would boost oil product demand and aggravate pollution.
Under the new pricing mechanism, Chinese refiners will have to direct the incremental profit margin (when global crude oil price fall below US$40/bbl) to a special risk reserve, which will allocate funds to oil product upgrade, security of oil supply, energy conservation and emission reduction.