OREANDA-NEWS. October 31, 2014. The recent rapid drop in global crude prices has left Chinese refiners grappling with negative margins as they struggle to process crude purchased at a higher price a few months ago and concurrently selling oil products at lower prices.

Sources said many refineries were suffering significant losses from declining crude prices.

"Most of the crude imports that arrived this month are priced against the average price of loading period in the previous month. When those crudes are processed into oil products, the price of those oil products will be much lower if the crude price continues to drop," a source at the West Pacific Petrochemical Corp. refinery in Dalian said.

AUTOMATIC ADJUSTMENT OF GASOLINE, DIESEL PRICES

The Chinese refiners' current grousing is quite different from prior to 2013, when they complained of heavy losses because of high crude prices at over \\$100/b for much of 2011 and the first half of 2012, while the government was slow to raise oil product prices on inflation fears.

Today the central government's oil product price setting mechanism involves the automatic adjustment of regulated gasoline and diesel prices every 10 working days in response to crude volatility. However, this means refiners' crude procurement costs from previous months are not reflected in current retail gasoline and gasoil prices.

The National Development and Reform Commission on Friday announced another price cut, reducing gasoline prices by Yuan 300/mt (USD 48.97/mt) and diesel prices by Yuan 290/mt.

This was the sixth consecutive reduction since June and prices for both fuels have fallen by about Yuan 1,000/mt in the period.

As a result, Chinese consumers at the pump are enjoying the lowest prices since October 2010. The benchmark retail gasoline price in the capital Beijing is now Yuan 8,860/mt, while the benchmark diesel price is Yuan 8,135/mt.