Chinese consumers shrug off rising transportation fuel prices

Unlike Japan and South Korea, both of which are looking at ways to battle runaway oil prices via subsidies and tax cuts, China has raised its ceiling price for gasoil and gasoline in keeping with its domestic oil pricing mechanism and has no plans to lower consumption tax as consumers shrug off higher transportation fuel costs.

The National Development and Reform Commission raised the country's ceiling retail price for gasoline and gasoil by Yuan 210/mt ($4.46/b) and Yuan 200/mt, respectively, on Feb. 17. The move led to prices rising to a seven-year high of Yuan 9,760/mt for gasoline and Yuan 8,720/mt for gasoil in Beijing. So far, the impact on demand has been minimal.

"Gasoline is selling well and I don't see any hesitation from our wholesale buyers despite the rising price. Gasoil sales are slightly slower than gasoline as factories are just resuming operations after the Lunar New Year holidays," a Guangdong-based source with PetroChina's sales division told S&P Global Platts.

Sources with state-owned and independent refineries across the country echoed a similar sentiment and added that there was no inventory pressure currently.

Platts Analytics data showed that China's gasoline and gasoil inventories in the wholesale market are at around 20% of their storage capacity in February, which is a relatively low level.

Platts Analytics projected China's gasoline demand to grow by about 2% year on year to 3.7 million b/d in 2022, while gasoil is to rise less than 2% to 4 million b/d.

Any impact on oil demand this year will be due to COVID-19-related controls and the [state of the] economy, a Beijing-based analyst said.

Income growth

The Chinese citizens have not protested the higher transportation fuel prices, in contrast to the years prior to 2015.

Market source cited the advent of electric vehicles as one reason why this could be happening.

"Those who are sensitive to oil prices drive electric vehicles now while those burning oil just fill their cars twice a month, which is not a huge expense in everyday life anymore," the source with PetroChina said.

China's pure electric vehicles sales hit 2.92 million units in 2021, rising 161% year on year and almost 12 times the 247,482 units sold in 2015, data from China Association of Automobile Manufacturers showed.

The sales volume of electric vehicles accounted for 11% of the country's total automobile sales in 2021, according to CAAM data.

"The pump price of gasoline is affordable at Yuan 8 ($1.26)/liter when compared with around Yuan 18/kg for vegetables in Beijing these days," an official with a pricing supervision authority told Platts.

"Fuel price has not been a big deal as incomes have risen and other living costs have surged even more, such as food prices, property prices and education-related spending," a second Beijing-based analyst said.

The fuel price hikes fall behind Chinese residents' income growth and the rise in prices of other essentials like vegetables.

NBS data showed that the nation's average annual disposable income gained 74.2% to Yuan 35,128/person by end 2021 from Yuan 20,167/person by end 2014, while the prices for fresh vegetables rose 31.2% during the same period.

China's National Bureau of Statistics said Feb. 16 that the country's consumer price index rose 0.4% on the month and 0.9% on the year in January. The prices of oil products -- gasoline and gasoil -- rose 2.2% and 2.4% from December, respectively, and jumped 20.7% and 22.7% year on year, according to the NBS.

Consumption tax

"China is unlikely to reduce the consumption tax on gasoline, gasoil amid its net-zero journey," the second Beijing-based analyst said.

Between November 2014 and January 2015, when international crude prices plunged, Beijing raised consumption taxes on gasoline and gasoil thrice.

As a result, the tax on gasoline rose 52% to the current Yuan 2,110/mt and gasoil rose 50% to Yuan 1,411/mt from the levels prior to Nov. 29, 2014.

The government had explained that its intention with hiking the taxes was to cap the consumption of dirty energy and boost energy efficiency.

"Adding to the intention, the Chinese citizens seem comfortable with current fuel prices while the CPI is very low. There is no point for the government to lower the taxes at all," the analyst added.

Domestic wholesale prices remain between 2%-4% higher than international prices and export-oriented refiners have said they prefer to sell in the domestic market, where prices are higher than the international market.

The wholesale price of 92 RON gasoline was offered Feb. 28 at Yuan 9,450/mt in Guangzhou, an international trading hub in southern China, according to market sources. The price equated to $116.05/b before taxes and fees, 2.5% higher than the 92 RON gasoline FOB Singapore cargo price of $113.26/b on the same day, Platts data showed. Meanwhile, the gasoil wholesale price was at $119.98/b before taxes and fees, 3.9% higher than the 10 ppm gasoil FOB Singapore assessment of $115.45/b Feb. 28.