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Gov't Freezes Retail Oil Prices

Zhen Yi, a taxi driver for Xinyue United in Beijing, kept complaining as he was driving.

"Life is becoming tougher," grumbled the 30-year-old, who recently became a father. "You cannot get a single passenger even at rush hour."

Zhen said he works 12 hours a day: 8 hours to earn money to pay administration fees to the company and gasoline costs, and the remaining 4 to make ends meet.

"If the oil price keeps rising, I will have to work even longer," said Zhen.

But Zhen can rest assured that another round of price hikes on the international market will not affect him, at least for the time being.

On Sunday, the National Development and Reform Commission (NDRC) ruled out raising retail prices for gasoline and diesel oil in the near future, despite soaring crude oil prices on international markets in recent weeks.

The NDRC said oil product supply and demand are generally balanced, although some gas stations have been raising prices illegally.

To ensure supply, the NDRC has urged oil companies to process and import more oil products. Transportation agencies have also been instructed to deploy adequate carrying capacity and ensure timely delivery of adequate oil supplies.

The NDRC fixes the price of oil products sold domestically on the basis of the weighted average of futures exchanges in Singapore, Rotterdam and New York.

Oil product prices in China have risen just 15 percent this year, while international oil prices have jumped more than 60 percent in the same period.

Observers say dealers have been hoarding oil products, speculating that the NDRC would soon raise the prices to reflect the international spike and reduce the losses of refineries. Stretched supplies have led to gas stations running their tanks dry in the east and south and some raising prices illegally.

The NDRC's rare announcement, however, indicates that the central government believes that hiking oil prices would fan inflation and undermine efforts to cool the economy.

The commission also said it would immediately initiate a nationwide inspection to clamp down on those who are stockpiling products or illegally raising prices.

But the government's decision to postpone raising retail prices will make life even tougher for the refineries, which are already saddled with losses because they have to buy crude oil at high prices while downstream prices are frozen.

Last week, Sinopec, China's largest refiner, announced that pretax profit in its refining division fell 20 percent year-on-year to 1.5 billion yuan (US$178.9 million) in the third quarter.

Analysts say that the refining business could get even worse as oil prices continue to rise.

To help the refineries cope, 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 percent from the same period of last year. During that period, production of gasoline, kerosene and diesel oil reached 120 million tons, a rise of 16.4 percent; and the amount of imported finished oil products leapt 88.0 percent to 3.9 million tons.

China has overtaken Japan to become the world's second-biggest oil consumer, following the United States.

(China Daily November 2, 2004)

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