China To Cut Domestic Fuel Prices

Crude oil gained moderately after Beijing announced a 14 percent cut in refinery gate gasoline prices and 18 percent drop in diesel prices, plus a nearly one-third cut in jet fuel.

The cuts were not unexpected after China announced last month that it would push ahead a long-stalled effort to allow its domestic prices to fluctuate in line with the global market.

China also confirmed on Thursday its previously announced tax increase on a range of fuels to curb "unreasonable" consumption in the world's second-largest oil user, whose determination to keep its petrol cheap had aided the rapid oil demand growth that helped drive crude to a record $147 in July.

But modestly lower prices are unlikely to do much to boost oil demand, which shrank last month for the first time in almost three years, as the economy takes a bigger-than-expected hit from the deepening recession in its main export markets.

"The price cuts and reforms will support oil demand in China but the impact of the financial crisis on the country may be more than we expected a few months ago," said Ehsan Ul-Haq, head of research at JBC Energy in Vienna.

After China announced the fuel price cut, the U.S. January light crude contract, which sank to $39.19 on Thursday, was trading up 65 cents at $40.71 a barrel by 1202 GMT. London Brent crude for February rose 85 cents to $46.38.

"The price cuts and reforms will support oil demand in China but the impact of the financial crisis on the country may be more than we expected a few months ago," said Ehsan Ul-Haq, head of research at JBC Energy in Vienna.

Author: Ksenia Kochneva