With a time lag between China's adjustments to oil prices and the fluctuations in oil prices in the international market, dealers can accurately calculate the extent of the oncoming price adjustment, opening the door for speculation in the market. The current Chinese pricing mechanism has been unable to meet the requirements from the domestic market. Additionally, the implementation of the current oil price adjusting mechanism is too arbitrary. The abortions of price adjustment in 2003 were mainly caused by human factors and have, to some extent, affected the steady development of the domestic oil product market.
The government is now in the midst of preparing plans on the modification of this mechanism. Oil prices will be determined by market forces -- this will be the basic principle of this modification. The new pricing mechanism will bring the pricing principle under the management of laws, which will reduce the direct intervention of the government, increase the equity and transparence of information, propel the development of market force - dominating oil product pricing mechanism and eventually integrate domestic and international oil prices.
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Speculation to End
Integration of Chinese and international oil prices not far off...