SINGAPORE/BEIJING - Chinese policymakers are considering cutting domestic fuel prices for the first time
in almost two years after a more than 50 percent dive in crude oil prices returned refiners to profit, officials said on
Friday.

The tumble in global crude prices from a record above $147 in July to $67 a barrel on Friday, has dragged gasoline prices in the United States to below Chinese rates for the first time in years, piling pressure on Beijing, which is also working to combat slowing economic growth amid the financial turmoil.

Two oil industry sources told Reuters that state-owned oil companies under pressure to fulfil their social obligations had submitted a proposal to cut fuel prices by an undisclosed amount to the National Development and Reform Commission (NDRC), which sets energy policy and regulates energy prices.

"International oil prices have fallen a lot and the government wants to make pump prices on a floating basis in the
long term. The possibility of an imminent cut is high," said an oil trader from Beijing, who asked not to be named.

"The documents for the cuts are already sitting on the desk for the final approval," he added.

A cut would come just four months after China unexpectedly raised state-regulated retail gasoline and diesel prices by up to 18 percent, its first increase in eight months and the sharpest ever one-off rise.

Two weeks later oil prices began their biggest-ever decline on concerns that higher prices - including in subsidised
markets like China and India - were finally curbing demand.

The rout has gathered pace recently as the global financial crisis worsens.

Crimps Nascent Profits

A cut would crimp profits at China's top two refiners, Sinopec Corp and PetroChina, which are only now back in the black after years of bearing the cost of selling cheap domestic fuel while global prices soar, with losses barely offset by unpredictable state subsidies.

But cheaper fuel prices, even if in line with the global market, could also help revive flagging oil demand growth in
the world's second-largest consumer, although drivers and companies facing an uncertain economic outlook may not be greatly encouraged if the price cut is modest, analysts say.

Following the late-June retail price hike, the breakeven point is around $90 a barrel for Chinese state refiners to turn
their refining business into profits, one official said.

"Now with the global crude at less than $70 a barrel, there is definitely room for a price cut. It is a direction China
wants to move for oil prices to fluctuate in line with market conditions," said a Chinese official familiar with the matter.

Retail gasoline prices in China are now hovering 17 percent above those in the United States and the difference between Chinese diesel prices and the U.S. has narrowed to 23 cents a gallon from $1.38 in July, data have shown.