Policymakers working out when to link the nation's lower refined oil price to the international market are under pressure after global crude oil crossed $100 a barrel on Wednesday.
When the global price rose to $90 a barrel, a spokesman for the National Development and Reform Commission (NDRC) said it was in a "difficult situation" reforming the country's energy and resources pricing system.
The crude price in China is already decided by the global market, but the refined price is still regulated by the government.
"It's not good timing because China is already in a high-inflation cycle," said the NDRC spokesman, adding that curbing inflation is a priority in 2008.
Analysts said it's unlikely the government will raise the refined oil price and the central government will continue to subsidize refiners that have run at a loss for years due to higher import costs.
Lin Boqing, director of the China Center for Energy Economics Research at Xiamen University, said energy pricing reform, especially for refined oil, should continue and that the government has said repeatedly "it is necessary to reform the pricing mechanism of resource products to further improve efficiency".
"But the reform should be implemented at the right time with due consideration for all concerned," said Lin.
Lin said low energy prices have increased the competitiveness of China's high-energy-consuming, high-polluting and resource-based products, enlarged trade surpluses and exaggerated yuan appreciation pressure. "Reform is a matter of urgency," said Lin.
China has raised the refined oil price four times since 2006. The current average price is about $65 a barrel. The global crude price skyrocketed from $70 a barrel in July last year to $100 a barrel on Wednesday.
Some refiners have stopped production due to higher costs, which led to a supply shortage in coastal areas. The government urged China National Petroleum Corp and China Petroleum and Chemical Corp, the nation's two largest oil producers, to go all out to ensure fuel supplies.
Fuel shortages eased after prices began climbing in November, but many regions still face a tight diesel supply. The commission raised the prices of gasoline, diesel oil and aviation kerosene by 500 yuan per ton, a rise of around 8 percent. The average retail price of gasoline now stands at 5,980 yuan per ton, and diesel is 5,520 yuan per ton.
(China Daily January 4, 2008)