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Reformers battle global oil price tide
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Policymakers working to determine when to close the gap between the comparatively lower prices of refined oil products in China and those on the international market have been struggling with the record-setting global price.

At the beginning of January, oil was selling for $100 a barrel.

When it rose to $90 a barrel, a spokesman for the National Development and Reform Commission (NDRC) said the ministry-level body was in a "difficult situation" reforming the country's energy and resources pricing system.

The price of crude oil in China is set by the global market, but the refined price is still regulated by the government.

"The timing is not good because China is already in a high-inflation cycle," an NDRC spokesman said, adding that curbing inflation is a priority this year.

Analysts said it is unlikely that the government will raise the prices of refined oil products. They said the central government will continue to subsidize refiners, which 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 products, should continue and that the government has said repeatedly "it is necessary to reform the pricing mechanism of resource products to improve efficiency".

"But reform should be carried out at the right time, with due consideration for all concerned," Lin said.

He said low energy prices had increased the competitiveness of high-energy-consuming, high-polluting and resource-based industries, enlarged trade surpluses and exacerbated yuan appreciation pressure.

The authorities have 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 at the beginning of January.

Some refiners have stopped production due to the high costs they must bear, which has led to supply shortages in coastal areas. In response, the government has urged China National Petroleum Corp and China Petrochemical Corp, the nation's two largest oil producers, to go all out to ensure fuel supplies.

Fuel shortages eased after prices began climbing last November, but many regions still face tight diesel supplies. The NDRC raised the prices of gasoline, diesel oil and aviation kerosene by 500 yuan (about $69) per ton, representing an increase of 8 percent. The average retail price of gasoline is now 5,980 yuan per ton, and diesel is 5,520 yuan per ton.

China scored new highs both in oil output and consumption in 2007, boosted by the robust momentum of its economic growth. Sources with the China Petroleum and Chemical Industry Association said recently that China had produced 186.7 million tons of crude oil in 2007, up 1.6 percent from 2006.

The output represented a record high, though the growth was slow, Deng Xianrong, a researcher at the State Council's Development Research Center, said.

The country's net imports of crude oil climbed to 159.28 million tons last year, up 14.7 percent. Consumption of crude oil, or the sum of net imports plus output, rose 7.3 percent to 346 million tons in 2007. That means that some 46.05 percent of the county's crude oil consumption is met by imports.

The sizzling economy, large influxes of investment in heavy industry and the many cars crowding city streets have driven up China's demand for oil. The country's GDP grew by 11.4 percent last year, the fastest rate in the past 13 years, with the industrial added value rising 18.5 percent from a year ago.

The diesel shortage that hit the country in the second half of last year led to a sharp rises in diesel imports. China imported 1.62 million tons of diesel in 2007, up 130.1 percent year-on-year, with the volume of diesel exports dropping 14.9 percent to 660,000 tons.

(China Daily February 11, 2008)

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