In response to another round of rising global crude prices, China's top oil producers are considering seeking approval from the National Development and Reform Commission (NDRC) to increase prices of gasoline and diesel.

The nation's two largest oil companies, China National Petroleum Corp (CNPC) and China Petroleum & Chemical Corp, are among the firms that want a price hike for refined oil products, according to industry insiders.

"If global oil prices continue to skyrocket, the nation's top economic planner NDRC will undoubtedly regulate the price," said Gong Jinshuang, a senior analyst at the Economic and Technology Research Institute with CNPC, the nation's largest oil company.

"But the NDRC will be scrupulous about approving a price hike as it may intensify pressure on the consumer price index (CPI)," he added.

According to the NDRC, China's CPI this year may rise by over 3 percent, the warning line set by the central bank. In May alone, the CPI reached a two-year high growth of 3.4 percent after rising by 3.1 percent in March and 3.0 percent in April.

If higher prices for oil products are approved, such an increase would be the first adjustment since January, when China lowered prices for domestic gasoline by 220 yuan per ton and jet fuel by 90 yuan per ton - while keeping diesel prices steady - in response to falling international oil prices.

China has raised the price for refined oil products 12 times since 2003, including twice in 2006.

Refining losses

International crude oil prices have hovered above $70 a barrel in recent weeks, squeezing profit margins for local refiners.

"If the trend continues and the price for local oil products doesn't increase, domestic oil companies will see widening refining losses," said Liu Gu, an energy analyst with Shenzhen-based Guotai Jun'an Securities Ltd.

The nation's largest oil refiner Sinopec, which imports 70 percent of its crude oil, will see a loss in its second-quarter refining business due to high crude oil price, she said.

The refining business of New York and Hong Kong-listed Sinopec recorded a profit of 4.17 billion yuan in the first quarter due to lower crude oil prices. In 2006 its refining loss widened to 25.3 billion yuan from 3.54 billion yuan a year earlier.

China's crude oil imports have outpaced its domestic production in recent years to satisfy increasing demands for energy. From January to June, China imported 81.54 million tons of crude oil, up 11.2 percent year-on-year. Analysts forecast full-year imports to climb 10 percent from 145.2 million tons in 2006.

PetroChina, the listed company of CNPC, will import 40 percent of the crude oil it needs for refining this year, up from 30 percent in 2006, a company official said earlier.

Oil reserves

To ease risks from fluctuating prices, domestic oil companies should expand stockpiles, said Han Xiaoping, a veteran energy analyst with China5e.com, one of the top energy websites in China.

PetroChina began building a commercial crude oil reserve facility in Northeast China's Liaoning Province in late June. The company plans to build another commercial crude oil reserve site in Northwest China's Xinjiang Uygur Autonomous Region.

Other top Chinese oil companies, such as Sinopec and Sinochem, have also embarked on construction of commercial crude oil reserve facilities, said an official with PetroChina.

China started to build its strategic reserve system in 2004 beginning with four facilities, two in Zhejiang, one in Shandong, and a fourth in Liaoning province.

The two bases in Zhejiang are now operational with a capacity of around 5 million tons each. The others are expected to start operations between late 2007 and early 2008.

(China Daily July 18 2007)