China will reform its long-debated oil pricing mechanism by making the prices of its processed oil more responsive to the global oil price fluctuation, said a senior official Friday.
The move will help crack down on domestic oil speculation and ensure the supply, said Zhao Xiaoping, director of the pricing department of the National Development and Reform Commission (NDRC).
Zhao made the remarks at a symposium held in Beijing discussing the price reform of energy and resources, including water, electricity, oil and gas.
China long set the price of processed oil based on the average price of oil products in the Singapore, Rotterdam and New York markets.
However, as the government only adjusts the price of oil products when the international price changes enough, the final price is not only too sluggish for the market but also transparent enough for speculating activities.
Zhao said China will improve the data collection on the Singapore, Rotterdam and New York markets and shorten the period of prices adjustment.
To ensure adequate processed oil supply, Zhao said China will also cut down the fast profit of petroleum mining sector by taxation means and subsidize the oil refiners to encourage production.
Due to the soaring international oil price, China's petroleum mining industry enjoyed huge profits since the beginning of this year, whereas the processing sector suffered huge losses as the processed oil prices was tightly controlled by the government.
Although the government has raised the processed oil prices several times, it is still much lower than the international prices, dampening the enthusiasm for refiners.
As a result, many refiners cut down production and sales of gasoline once become tense in some coastal areas.
Industry insiders held that to subsidize the refiners could ensure the oil supply and prevent oil crunch.
Zhao said the government will also give subsidy to people engaged in related sectors, such as taxi drivers, when the processed oil prices climbed higher.
Yang is a taxi driver in Beijing. Every time the price of gasoline and diesel is raised by 0.3 yuan (3.6 cents) per liter, his expenditure on the fuel in a month will go up by 200 yuan (US$24) to 300 yuan (US$36).
China has raised the oil prices four times since the beginning of this year.
(Xinhua News Agency October 29, 2005)