Starting from midnight tonight (the 11th), the ceiling retail prices for gasoline and diesel (standard products) in China will rise by 260 yuan and 250 yuan per tonne, respectively. Calculations based on the current pricing mechanism initially indicated that these prices should have increased by 435 yuan and 420 yuan per tonne. However, to cushion the domestic impact of surging international oil prices and reduce the burden on downstream users, the government has once again intervened with control measures on refined oil prices, trimming the effective increase by roughly 40%.

What is driving the higher prices?

According to Tian Lei, Director of the Energy Economics Center at the China Macroeconomic Research Institute's Energy Institute, since the last domestic fuel price adjustment on August 28, international crude oil markets have experienced persistent and significant gains. This surge is attributed to renewed geopolitical tensions in the Middle East, including a fresh military conflict between the US and Iran and attacks on Saudi oil facilities. Crude prices have once again breached the $100-per-barrel threshold. On September 10, Brent crude futures spiked to $107.63 per barrel, with a single-day increase exceeding $6. In recent days, Middle East crude prices have also seen abnormal jumps, with gains surpassing 30%.

This latest regulatory measure translates to a reduction in the price hike by 175 yuan per tonne for gasoline and 170 yuan per tonne for diesel compared to the initial calculation. For consumers at the pump, this means the increase for 92-octane gasoline and 0-diesel is lowered by 0.14 yuan and 0.15 yuan per liter, respectively, which represents a mitigation of about 40% of the intended rise. In practical terms, it is estimated that filling up a private car's tank will now cost 7 yuan less, while a large truck driver will save approximately 75 yuan per full tank.

Balancing market stability and consumer costs

Experts note that the government's intervention requires a careful balancing act. The decision must weigh the need to ensure market supply security against the capacity of downstream industries and consumers to absorb higher costs. The goal is to prevent extreme price volatility from overly impacting end-users while still allowing for the appropriate recovery of crude oil import costs to guarantee a stable supply of refined products.

Lü Zhichen, Deputy Director of the Price, Cost and Certification Center at the National Development and Reform Commission, indicated that further fiscal and tax support measures could be introduced to safeguard supply. This approach mirrors the strategy employed in 2022 during the Russia-Ukraine conflict, when international crude prices soared. At that time, the state stipulated that if international crude prices surpassed the regulatory ceiling of $130 per barrel, domestic refined oil prices would not be adjusted upward in the short term, and instead, phased subsidies were provided to refining enterprises.

This latest adjustment is a direct response to the current escalation in Middle East tensions, which have once again pushed global energy markets into a state of flux.