Efforts to stabilize oil products prices
By Xie Ye (China Daily)
Updated: 2004-11-02 01:59

"Life is becoming tougher," grumbled the 30-year-old. "You cannot get a single passenger even at rush hours."

Zhen said he works 12 hours a day -- eight hours to earn money to pay mandated administration fees for the company and gasoline costs, and the remaining four hours to make ends meet.

"If the oil price keeps rising, the only way is to work even longer," said Zhen, father of a three-month-old.

But Zhen can rest assured that he does not have to suffer a fresh oil price hike on the international market, at least for the time being.

On Sunday, the National Development and Reform Commission (NDRC) ruled out the possibility that China would raise the prices of gasoline and diesel oil in the near future, despite recent rocketing crude oil prices on international markets.

NDRC said the supply and demand of oil products are "overall balanced," although some petrol stations were illegally raising prices.

To ensure supply, NDRC has urged oil companies to make greater efforts in processing more oil products and importing more.

Transportation departments have also been urged to deploy adequate carrying capacity and guarantee smooth delivery of oil products.

The rare announcement by NDRC underscores the tightened supply of oil products, partly because of market speculation.

The oil price on China's domestic market is currently fixed by the NDRC on the basis of the weighted average of futures exchanges in Singapore, Rotterdam and New York.

Oil product prices in China rose 15 per cent this year, while international oil prices have jumped more than 60 per cent in the same period.

Observers said dealers are hoarding oil products, speculating that NDRC would soon raise the prices to reflect the international spike and reduce the losses of refineries.

Stretched supplies have led to petrol stations running out of stocks in the East and South and stations raising prices illegally.

The NDRC's move, however, indicates that the government would hold any price rise, considering that oil price increases would fan inflation and undermine the central government's efforts to cool down the economy.

To stabilize supply, NDRC also announced that it would immediately initiate a nationwide check on the prices of oil products, stocking up on oil products or raising oil products prices at will.

The government's decision to postpone raising retail prices for oil products will make the life of refineries even tougher.

Refineries are saddled with losses because they have to buy crude oil at high prices while not being able to pass on cost increases to end users as the NDRC has frozen retail prices.

Last week, Sinopec, China's largest refiner, announced that earnings before interest and tax of its refining division fell 20 per cent year-on-year to 1.48 billion yuan (US$178.9 million) in the third quarter.

Analysts said the refining business could be even worse than the third quarter as oil prices continue to rise.

To help refineries cope with cost rises, oil companies have raised ex-factory prices for oil products, squeezing the profit margin for wholesalers.

China refined 190 million tons of crude in the first three quarters of this year, up 15 per cent year on year. During that period, production of gasoline, kerosene and diesel oil reached 120 million tons, up 16.4 per cent; and the amount of imported finished oil products reached 3.85 million tons, up 88 per cent.

China has overtaken Japan to become the second-biggest oil consumer behind the United States.

Close