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China To Cut Gasoline and Diesel Retail Prices Amid Weaker Demand

Chinese news agency, Xinhua, has reported that China's National Development and Reform Commission will cut gasoline and diesel prices by 440 yuan (about $62.51) per tonne and 425 yuan per tonne, respectively starting Tuesday. 

Beijing has also directed the country’s three biggest oil companies, namely the China National Petroleum Corporation, the China National Offshore Oil Corporation and the China Petrochemical Corporation to maintain oil production and facilitate transportation to ensure stable supplies.

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This marks the second consecutive reduction in gasoline and diesel prices since 21st November, a move that will lower the cost for daily and logistics transportation. China's current pricing mechanism adjusts the prices of refined oil products such as gasoline and diesel if international crude oil prices change by more than 50 yuan per tonne and remain at that level for 10 working days.

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Brent prices have tumbled 11.3% over the past 30 days (~76.84 yuan per barrel) but have fallen less than 1% since the last cut on November 21, suggesting that China could be buying Russian Urals at big discounts. 

According to Bloomberg's oil strategist Julian Lee, Russia's flagship Urals crude oil traded at a massive discount of $33.28, or about 40% to the international Brent crude oil, at the end of last week, with India and China its biggest buyers. In contrast, a year ago, Urals traded at a much smaller discount of $2.85 to Brent. Urals is the main blend exported by Russia. The result: Moscow is beginning to feel the heat of its war in Ukraine, and could be losing ~$4 billion a month in energy revenues as per Bloomberg's calculations.

Falling fuel prices in China could also signal weakening demand and could eventually hit global oil prices. Experts have warned that China’s zero-Covid policy has been taking a toll on fuel consumption and could remain that way for months. With new Covid restrictions released last month, China’s crude consumption is estimated to fall by 200,000–300,000 b/d in the coming months, though Sunday saw some lockdown curbs walked back due to pressure from protesters.

By Alex Kimani for Oilprice.com

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