They say an oil exchange is a must to mitigate strong fluctuations on the home market affected by the crazy world oil market.

"The oil exchange can serve as a domestic oil price regulator," said Song Wucheng, a senior analyst of the Energy Research Institute under the State Development Planning Commission.

Producers and consumers should be allowed to conduct spot and future crude oil and fuel transactions in the exchange, Song said.

"Prices formed in the exchanges on the basis of bargains between oil producers and consumers can reflect the actual scenario between the domestic market supply and demand and world oil price undulations," Song said in an interview with China Daily.

Conditions are different on the domestic and world oil markets, although the Chinese government has let domestic crude oil prices from 1998 fluctuate according to international market changes, Song said.

The Chinese government is also bringing domestic fuel prices more in line with the world level.

The commission has increased domestic fuel prices seven times in recent 10 months.

The average retail price of gasoline surged to 4,160 yuan (US$501.2) per ton from 2,937 yuan (US$353.9) in last November.

The government's chronic fuel price adjustments, carried out one month later based on future prices on the world markets, have damaged the oil sector and stiffened the atmosphere on the domestic market.

"I'm afraid that I will pay much more for fuel because prices are likely to shoot up further," said Li Changgui, a Beijing taxi driver.

Domestic oil refineries also have felt pain from surging crude prices, with some still suffering losses.

"The oil exchange, especially future transactions, can help oil and fuel producers and buyers analyze market trends, fine-tune prices and reduce risks," said Yang Jingmin, director of the Development Research Center of the China National Petroleum Corporation, one of the country's oil giants.

Yang said the oil exchange should be re-opened in Shanghai, China's finance center.

Two oil exchanges were established in Shanghai and Beijing in 1993. But the central government closed them in 1995 to straighten out oil and fuel circulation.

But the government's firm grip on oil and fuel distribution, left over from the outmoded planned economy thinking, will be relaxed with the country's market-driven reforms advancing after China's imminent entry into the World Trade Organization, Yang said.

The Chinese government will have to open its oil market to foreigners by 2006 after it joins WTO.

"Re-establishment of an oil exchange will contribute to attracting foreign investment, especially foreign oil," Yang said.

The resources from abroad are expected to eke out China's oil reserves, Yang said.

China, a net oil importer since 1993, will rely more heavily on oil imports because of a widening gap between its oil production and demand.

Oil analysts estimated China's oil imports at 70 million tons (one ton equals 7.3 barrels) this year and 100 million tons by 2005.

The volatile world oil market has posed a serious threat to the country's energy security.

The world crude price reached a 10 year high of US$37.8 a barrel last Wednesday, compared with less than US$10 in March 1999.

Many predicted that oil prices would exceed US$40 a barrel by the end of this year.

(China Daily 09/24/2000)