What happened to oil prices returning to the 5 yuan era? What impacts will it have? Which year was the era of oil price at 5 yuan?

Affected by the sharp drop in international oil prices, domestic gasoline and diesel prices have also dropped significantly, and oil prices have returned to the 5 yuan era. So what exactly happened? What impacts will it have? Which year was the era of oil price at 5 yuan?

What exactly happened when oil prices returned to the 5 yuan era? What impacts will it have?

The international crude oil price has continued to fall in recent days. The National Development and Reform Commission announced on the 17th that in accordance with the current refined oil price formation mechanism, from 24:00 on March 17, 2020, the domestic gasoline and diesel prices will be reduced by 1,015 yuan and 975 yuan per ton respectively.

This price adjustment is equivalent to a reduction of about 8 cents per liter, and domestic gasoline and diesel prices have entered the "5 yuan era". This is the third reduction in refined oil prices in 2020 and the largest drop since the new pricing mechanism was implemented in 2013.

1. The floor price reappears after 4 years

As of around 16:00 Beijing time on March 17, the futures prices of the world's two major crude oil futures markets, New York Mercantile Exchange WTI and London Brent crude oil, were US$30.13 per barrel and US$30.96 per barrel, respectively, and have been hovering at a low of around US$30 per barrel for seven consecutive days.

It is in this context that Peng Shaozong, deputy director of the National Development and Reform Commission's Price Department and front-line inspector, said at a press conference of the NDRC that over the past 10 working days, international oil prices have fallen sharply, and the average level has fallen below the regulatory lower limit of US$40 per barrel, which we commonly call the "floor price." To this end, domestic refined oil prices will be significantly reduced to the level of $40 corresponding to crude oil prices from 24:00 on the 17th according to the mechanism, and the part below $40 will not be reduced. "The unadjusted part will not be directly left to the enterprises, but will be directly included in the oil price regulation risk reserve, and the amount will be paid to the state treasury."

This also means that the domestic oil price "floor price" mechanism has been activated again after a lapse of four years since it was first implemented during January-April 2016.

2. Reduced travel costs for car owners

Xu Wenwen, a refined oil analyst at Longzhong Information, said in an interview with a reporter from Qilu Evening News and Qilu One Point that after this price adjustment, the cumulative decline in gasoline this year is 1,850 yuan/ton, and the decline in diesel is 1,780 yuan/ton.

Based on the calculation of an ordinary private car with a fuel tank capacity of 50L, after this price adjustment, car owners will spend about 39.5 yuan less to fill up a tank of gas; based on the calculation of a car model with a fuel consumption of 7L-8L per 100 kilometers in urban areas, the average cost per 1,000 kilometers will be reduced by 55 yuan to 63 yuan. For large logistics transport vehicles with a full load of 50 tons, the fuel cost is reduced by about 332 yuan for every 1,000 kilometers traveled. This price adjustment will significantly reduce costs for private car owners and logistics companies.

3. Increased profits at gas stations

The wide drop in retail prices of gasoline and diesel will continue to have a negative impact on the domestic refined oil market. The Longzhong data model shows that the operating rates of the main refineries and independent refineries in Shandong are showing a slight increase, and the overall resource supply is showing a slight growth trend. After several bottom-fishing by middlemen in the early stage, the overall inventory is still at a high level, and the recent market news is still weak. The enthusiasm of terminals to enter the market to stock up is not high, and they mainly purchase in small quantities and frequently. It will still take time to consume the short-term market inventory.

Combined with the current Longzhong data model analysis, compared with the previous price adjustment cycle, wholesale prices have fallen significantly in recent days, which has slightly increased the profit margin of gas stations compared with the previous period. Among them, the main gas stations' gasoline retail profit increased by an average of 160 yuan per ton; the main diesel retail profit increased by 150 yuan per ton, and the profit of diesel sold to local refineries and gas stations expanded simultaneously, with the profit expanded to 159 yuan/ton, and the profit of gasoline sold to local refineries and gas stations increased by 351 yuan/ton.

After this round of refined oil price reduction is implemented, the retail price limit will be lowered. It is predicted that retail profits will decline in the later period.

4. “Ceiling price” and “floor price”

Judging from the extent of this price adjustment, domestic refined oil prices have followed the principle of timely adjustment based on changes in international oil prices, while taking into account the setting of a $40 protection mechanism.

It is worth noting that in 2016, the National Development and Reform Commission further promoted the marketization of refined oil prices and set a "ceiling price" and "floor price" for domestic refined oil price regulation - that is, there will be less adjustment after exceeding US$130, and no adjustment after falling below US$40. That is, when the international market oil price is higher than US$130 per barrel, the maximum retail price of gasoline and diesel will not be raised or will be raised slightly; when it is lower than US$40, the maximum retail price of gasoline and diesel will not be lowered; when it is between US$40 and US$130, the domestic refined oil price mechanism will be adjusted normally, and it will rise when it should rise and fall when it should fall.

5. The next round of price adjustment is likely to be shelved

The next price adjustment window will open at 24:00 on March 31, 2020. Li Yan, an analyst at Longzhong Information, believes that Russia and Saudi Arabia have successively proposed plans to increase production, the overseas epidemic is still spreading, and global stock markets have repeatedly experienced circuit breakers, all of which have brought continuous bearish pressure to the current international crude oil market. Based on the current international crude oil price level, the next round of refined oil price adjustment will start with a downward trend, with a range of about 740 yuan/ton. However, as international oil prices are generally lower than 40 US dollars/barrel, the next round will most likely trigger the protection mechanism, which means that the next round of refined oil price adjustment is expected to be stranded with a high probability.

2. Which year was the era of oil price 5 yuan?

It is understood that oil prices entered the 5 yuan era in 2008. In addition, the domestic oil price "floor price" mechanism was first implemented from January to April 2016, and was launched again after a lapse of 4 years. In addition, this price adjustment is the third downward adjustment in the domestic refined oil price adjustment window in 2020. At the same time, it is also the largest single drop in the past 12 years. After this oil price reduction, domestic oil prices returned to the 5 yuan era, and oil prices fell to a nearly seven-year low.