China National Petroleum Corp (CNPC), the nation's largest oil company, has raised ex-factory prices for gasoline and diesel to bail refineries from losses.

Analysts said it is less likely the rises in ex-factory prices, for refined oil products, will be passed down to consumers by hiking retail and wholesales prices in the short-term, although the ex-factory price hike would add pressure for such a move.

Both retail and wholesale oil prices have been picking up recently, reflecting world market hikes.

The CNPC has raised the ex-factory prices for both gasoline and diesel by 60 yuan (US$7.3) a ton since June 1, said a company sales manager.

"It is to encourage the production at the refineries to meet the market demands," said the sales manager on condition of anonymity. The government has urged China's refineries to run at full capacity.

The manager said refineries are losing money because the ex-factory prices of oil products lags behind crude oil prices which have hit a decade-high.

The Beijing Times reported Tuesday that a sales branch of Sinopec - the nation's second largest oil company - has also raised the ex-factory prices for gasoline by 100 yuan (US$12.1) a ton.

The sales branch also raised the diesel rates by a smaller margin, the report said.

Sinopec officials, however, denied they have adjusted prices recently.

Insiders said Sinopec's refineries are suffering "serious losses" under the current price level.

The refinery-heavy Sinopec purchases about 70 percent of the crude it processes from imports, rival CNPC and from the smaller China National Offshore Oil Corp.

The imported crude oil prices have leveled with, if not exceeded, the ex-factory prices for refined oil products, squeezing the profit margin out of refineries.

Sinopec's refineries are losing money with prices at this level, said one insider.

Under the current pricing system, the government sets benchmark prices for wholesale and retail according to the international markets, and allows Sinopec and CNPC to float those prices by 8 percent. Based on the benchmark prices, the oil companies then decide their ex-factory prices, leaving enough profit margin for its wholesale business.

Analysts said the increase in the ex-factory prices could push retail and wholesales prices up.

Industrial sources said the two largest oil companies have applied to the State Development and Reform Commission to raise the wholesales prices for diesel and gasoline by 300 yuan (US$36.2) a ton to reflect international prices hikes.

But analysts said the SDRC is unlikely to raise prices immediately because the demand for diesel has picked up during the current farming season.

The government worries further price increases would raise costs for poor farmers. Earlier in March, benchmark wholesale prices for gasoline went up by 300 yuan (US$36.3) a ton, or 8 percent. The diesel price went up by 280 yuan (US$33.8) a ton.

Gong Jingshuang, an expert with CNPC's consulting institute, also said the NDPC will not increase retail prices as international prices are dropping due to more output from oil producing countries.

(China Daily June 9, 2004)