Published: Monday, 9 Nov 2009 | 9:42 AM ET

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China will lift gasoline and diesel prices by around 7 percent from 1600 GMT on Monday to reflect the rising cost of crude oil, taking pump prices to their highest ever, a government official told Reuters on Monday.

The rise in prices was widely expected but the size, at 480 yuan ($70.32) per tonne, was more than the increase of around 350 yuan ($51.27) most market participants had expected, suggesting that China sees little danger of the inflationary worries that beset price rise decisions as little as a year ago.

The price rise is the first such adjustment in two months and the eighth this year, after four previous rises and three cuts. For a table of historical rises, please click on

The decision by China's price-setting ministry, the National Development and Reform Commission (NDRC), means higher costs for China's swelling ranks of gas-guzzling motorists and for its huge industrial and agricultural sectors, the main users of diesel.

"There is no sign these price increases will curb demand — we think Chinese demand growth will continue and that it will continue to be supportive of global oil markets," said Mike Wittner, global head of oil research at Societe Generale.

All the evidence suggested demand would keep growing rapidly after rising 1.7 million barrels per day between January and July this year, he said. "The line is pretty much straight up."

The rise gives breathing room to state oil refiners Sinopec Corp and PetroChina, who have seen their margins crunched in recent weeks by a U.S. light crude oil price nudging up to and past $80 per barrel.

"The NDRC is sticking to its commitment that the flat price will not affect China's refining run rates," said a trading analyst with a Western firm. "It will be bullish for crude markets — potentially a big impact."

Record Refinery Runs

China's refineries have processed record amounts of crude since April, with monthly refining volumes breaking through 30 million tonnes in May and staying above

that level until at least September. Data for October is due to be issued on Wednesday.

"This will keep China's refining rates high, which again will support the country's crude imports," said an analyst who asked not to be named.

The heightened refining activity has in turn pushed China's apparent oil demand to record levels, although China has cast off large volumes of diesel and gasoline as exports.

Higher prices may give refiners more incentive to produce but they also may find fewer buyers, and traders said they expected gasoline exports, which barely slipped below 300,000 tonnes between April and September, to stay above that level this month.

"Although it does not have an immediate impact on the Chinese demand numbers it might lead to lower demand growth expectations and to weigh on prices due to psychological effects," said Eugen Weinberg, head of commodity research at Commerzbank in Frankfurt.

In its last adjustment to prices, China cut fuel prices by a modest 3 percent or 190 yuan per tonne for both gasoline and diesel on Sept 30 as global crude stood at around $67 a barrel.

That put domestic pump prices at an equivalent crude price of about $60 a barrel, a government think-tank researcher said.

"And it seems that the government is inclined to keep a $7-8 gap between the domestic price and global crude prices," he said.

Under the year-old pricing mechanism, Beijing may change fuel prices when a 22-day moving average crude price moves more than 4 percent.

"When they first started changing prices, there was concern in some quarters that this might have an impact on Chinese consumption growth," said Wittner. "But there is absolutely no sign of that. I take this as neutral for the global oil market."

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