Fuel prices set to fall, but oil taxes rise again

Revenue will finance moves to cut emissions, protect environment

Retail fuel prices are set to fall on Saturday, the National Development and Reform Commission said in a widely anticipated announcement, but drivers got bad news along with the good: the consumption tax on oil products will rise on the same day.

It will be the second tax hike in about two weeks.

The NDRC, the nation's top price regulator, said on Friday that because of falling world oil prices, the ceiling on retail gasoline prices will decline by 170 yuan ($27.72) per metric ton. For diesel, the cut will be 400 yuan per ton.

Fuel prices vary, but for one common grade of gasoline, the price will fall from 6.18 yuan per liter to 6.05 yuan.

The Ministry of Finance and the State Administration of Taxation, meanwhile, jointly announced that China will raise the consumption tax on refined oil products to fund efforts to cut emissions and improve energy efficiency.

The tax on gasoline will rise from 1.12 yuan per liter to 1.4 yuan and that on diesel will go from 0.94 yuan to 1.1 yuan. Taxes were previously increased on Nov 29.

The prices announced by the NDRC reflect the impact of the tax.

Xue Qun, a retail oil product analyst at Shandong-based consultancy Longzhong Information Technology Co, said the tax rise will mean higher costs for consumers. The authorities chose a period when international crude prices were falling to raise the tax rates so that consumers would find the tax increase easier to accept.

The tax revenues will be used in ways that will reduce carbon emissions and protect the environment, which will help the industry in the long run, according to Xue.

Oil prices will likely come under further downward pressure after the International Energy Agency said it had cut its outlook for growth in 2015.

Global oil prices have been falling since June as demand weakened in China and Europe while output in the United States grew steadily.

China's retail fuel pricing mechanism, which allowed for periodic adjustments depending on global market movements, was more closely linked to global crude prices in March 2013, and the government has pursued opening up of the country's oil market.

Separately, the Shanghai International Energy Exchange won approval to trade crude oil futures, Deng Ge, a spokesman for the China Securities Regulatory Commission, told a news conference on Friday.

The futures market will support liberalization of the country's crude oil market, a major part of opening up the market to global investors, said Deng.

Market insiders said the goal is to turn the Chinese markets into an alternative benchmark for global oil pricing.

Oil futures, mainly West Texas Intermediate and Brent Crude, are used as the benchmarks in global oil pricing.