Others News
- Govt. pressured to raise oil prices
Date: 27-Jul-2007 Sources: (Shenzhen Daily)
THE government conceded Wednesday that it was under pressure to raise oil product prices to provide relief to the country's State refiners, which are nursing hefty losses due to the high cost of crude.
The gap between domestic and international prices also risked tightening fuel supplies, said Cao Changqing, director general of the price department at the National Development and Reform Commission (NDRC).
But officials continue to worry about the impact of any hikes in the price of gasoline and diesel on end-users if they respond to crude oil futures, which were trading around US$73.33 a barrel for September delivery on the New York Mercantile Exchange. The record high for the front-month crude oil contract on Nymex is US$78.40 a barrel, set in July last year.
China's freedom to raise State-run price caps on oil products has been cramped by the recent surge in inflation, which accelerated in June to 4.4 percent compared with a year earlier and has led to worries about the country's economic health.
Low-income groups are already wrestling with higher food prices, which is the main engine for the recent rise in inflation and would find their budgets hit even further by higher prices for energy.
The dilemma facing the NDRC is mirrored in the power sector, where the country's big five generators have been unsuccessfully lobbying the government recently for higher electricity prices to reflect increases in the cost of coal, according to domestic media.
Speaking at a press conference, Cao said the government needed to take into account factors including the cost of compensating refiners before deciding whether to move on oil product prices.
The biggest loser from high oil prices is China Petroleum & Chemical Corp., better known as Sinopec Corp., because it is Asia's largest listed refiner. The company has needed State subsidies for the past two years to help cover its refining losses caused by State-set product price caps.
However, analysts note that this year, Sinopec has been able to raise the threshold above which it makes a loss on refining.
Deutsche Bank analyst David Hurd said Sinopec was now only making a loss on refining when oil prices rose above US$66 a barrel for benchmark Brent crude. This compared with US$60 a barrel for Brent last year. September Brent crude on London's ICE Futures exchange was trading around US$74.62 a barrel Wednesday.
He believed that this was due in part to Sinopec's parent company selling crude at a discount to market prices.
Earlier this month, Xinhua cited a government think tank as saying that the government was certain to raise domestic retail prices for oil products if international crude prices stay above US$70 a barrel for a prolonged period.
If approved, a price increase would be the first adjustment in retail price caps since mid-January, when the government lowered the cost of domestic gasoline and jet fuel while keeping diesel steady in response to falling international oil prices.
Gasoline prices were lowered by 220 yuan a ton to 4,980 yuan a ton in January, which was equivalent to a reduction of about 4.2 percent. The ex-factory price of jet fuel was cut by 90 yuan a ton, which was equivalent to a reduction of around 1-2 percent.
The last time China's oil product prices were raised was in May 2006.
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