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China Examines Its Oil Pricing Strategy

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In a boon to refiners, Chinese gas prices rise short-term as the government looks for better ways to work with Chinese oil companies and domestic consumers.

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Tracking Crude
China's National Development and Reform Commission, or NDRC, uses a tracking formula that takes the 22-day moving average of an international basket of crude prices, including Brent Crude and Indonesia's Cinta, and a greater than 4% change in this benchmark on crude triggers changes in the government's pricing.

This is not strictly followed, however, as Beijing is sensitive to inflation and is reluctant to pressure the consumer at all, so sometimes the increases in the crude benchmark are not immediately turned into an increase at the pump.

Crude oil has seen a resurgence globally due to a series of things. The US economy has been edging up, or at least showing small intimations of this, and there has been optimism once again that Europe will make headway on its debt crisis.

Lately, the rise of instability in the Middle East-always a harbinger for higher crude prices-has reared up again. In addition to these developments, the bond-buying guarantees by the ECB function as a stimulus, and the just-announced new round of quantitative easing by the US Federal Reserve are indicators that crude prices may continue to rise.

There has been talk of China going to a system where the tracking would include West Texas Intermediate crude prices pegged on the New York futures, rather than Indonesia's Cinta, along with changing to a ten-day moving average instead of a 22-day average.

This would cut some of the present lag time in the tracking procedure from when crude oil prices change until those changes are reflected in the adjusted fuel price. This would be seen as another means toward helping the refiners.

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