Chinese petrol far below global levels even after price hike

June 21st, 2008 - 10:07 am ICT by IANS  

By Andreas Landwehr
Beijing, June 21 (DPA) “Did you fill up before midnight?” one Beijing taxi driver called out to another Thursday night, making sure they all hit the Chinese capital’s petrol stations before the clock struck 12. The taxi drivers are affected by a 16-percent increase in petrol prices, in force since Friday, and can only hope that their companies will pick at least part of the increased tab.

But in the end, many may face earning losses from 10 to 20 percent.

“Can’t be helped,” one driver said, shaking his head. “It always hits us small fish.”

Kerosene prices were also increased by 25 percent and electricity fees are to go up 4.7 percent next month.

Yet, driving is still cheap in China, the world’s second largest oil consumer after the US, with its petrol prices the envy of drivers in many other countries.

Prices are kept artificially low by the state. Even after Friday’s hike, petrol and diesel cost 6.2 to 7.17 yuan (90 cents to $1.04) per litre respectively.

Before the price hike, China’s fuel prices had been about 40 percent below US levels, which are also a bargain by European standards, experts said.

International crude prices topped $136 a barrel Wednesday, up more than 45 percent from November, when China raised fuel prices the last time.

The policy of artificial price caps, however, led to fuel shortages as China’s refineries stopped to turn a profit from producing petrol a long time ago. In many cases, production was simply shut down.

In quite as few cases, trucks had to queue at petrol stations one or two days in advance when a diesel delivery was expected.

“Due to the sharp spike in international oil prices, some refineries had to be shut down with queues at petrol stations and rationing re-emerging in some regions,” the National Development and Reform Commission said.

Owing to the large gap between global oil prices and the frozen, low prices in China, state-owned Sinopec, which runs most refineries, incurred losses of more than 20 billion yuan in the first quarter of 2008, the China Daily newspaper reported.

Both Sinopec and PetroChina, China’s largest oil company, are compensated with state subsidies, adding to the market distortions.

China’s economic planners had wanted to prevent a fuel price raise, trying to avoid fanning inflation, which already had touched 12-year highs this year.

There were also fears that rising prices could endanger social stability ahead of the Beijing Olympics as a 20-percent food price increase caused discontent among China’s people.

In May, inflation dropped slightly from 8.5 to 7.7 percent, creating an opportunity to implement the fuel price hike as growing supply bottlenecks put an increasing strain on the economy.

Appropriate increases in fuel prices would now help to raise supply and promote energy consumption, the commission said. Experts, however, warned that the increase would only improve petrol supplies but not necessarily slow down rising demand.

As fuel prices are still far below global levels, only further increases could help solve the problems on the Chinese market.

As long as the country’s refineries are set to lose about $50 when processing one barrel of crude oil, they are a long way off from making profits, experts said.

Tags: , , , , , , , , , , , , , , , , , , ,

Posted in Business |