Under the new pricing mechanism, oil products companies will be allowed to raise retail prices correspondingly if the base price rises by no more than 7 percent, the government said on its website Friday. But they will also be required to keep two hikes at least 10 days apart.

The government will calculate the base price by adding the CIF price (cost, insurance, freight) to business overheads, taxes, other fees and payments and a profit margin. Currently, traders must get state permission for any and all price changes.

If the price gap is from 7 percent to 12 percent, traders can increase their prices by 7 percent and then raise 60 percent of the gap between 7 and 12 percent.

The remaining 40 percent will be offset by the government, using a price stabilization fund supported by collecting a portion of retail sales revenues.

The government set up the fund early this year to stabilize retail prices of fuel products in case global prices rise dramatically.

If the average base price is more than 12 percent higher than the retail price, the government will step in to stabilize prices by taking one or a series of measures, including cutting taxes and fund contributions.

On the contrary, if the base price drops lower than the current retail price, traders must cut their prices by the corresponding rate. If the price gap is larger than 12 percent, the government will impose additional measures including higher taxes and fund collections.