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Home >> Business
UPDATED: 12:54, August 08, 2005
Soaring oil price exposes weakness of China's oil product pricing system
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As international oil price rocked new highs again and again, China's processed oil products pricing system has triggered some doubts around the country.

As the price of China's processed oil products are linked to the international price to some extent, many Chinese car owners became worried when the closing price of light crude oil hit 61.89 US dollars per barrel for the first time in the New York Mercantile Exchange (Nymex) Tuesday and rose to 61.38 US dollars Thursday despite little drop Wednesday.

Based on the weighted average price of oil product in the three markets in Singapore, Rotterdam and New York, the wholesale and retail price of China's oil products are determined and published by the State Development and Reform Commission according to the domestic market.

Since July 2003, China has seen seven rises of its oil product price.

"If the gasoline price rises more, my cost may be too much," said Mr. Yang, who drives a taxi in Beijing.

Just last month, China saw the output price of gasoline and diesel rise by 300 yuan (37 US dollars) and 250 yuan (30.9 US dollars) respectively.

As a result, Yang's monthly cost in gasoline rose by 200 to 300 yuan, about ten percent of his current income.

In recent days, many car drivers in South China's Guangdong Province found it hard to buy the No.90 gasoline and the supply of No.93 gasoline has become tense.

A market insider said that the direct factor is that oil tankers were delayed by a typhoon.

But the prices of domestic oil products, which are lower than the international price dampened the enthusiasm of refiners. It is the fundamental reason for the decrease of the output of processed oil products.

According to the National Bureau of Statistics, China's oil processing sector saw serious losses in the first half of this year. Compared with the profit of 16.38 billion yuan (two billion US dollars) a year ago, the net losses of the sector from January to June reached 4.19 billion yuan(517 million US dollars). And the growth of processed crude oil dropped by 10 percentage points.

"The current oil products pricing system is the fundamental reason for the awkward state that both the consumer and the producer are dissatisfied," said Han Xuegong, professor with the University of Petroleum.

As the government will adjust the price of oil products only when the international price changes enough, the final price will be not only too sluggish for the market but also transparent enough for speculating activities, said Han.

Moreover, as the domestic crude oil price will be adjusted in line with the international crude oil price by month while the price of oil products will remain unchanged for a certain period of time, refiners will become reluctant to produce more when the crude oil price is too high while the price of oil products is too low, he said.

Niu Li, a researcher with State Information Center, said that due to such a pricing system, both producers and sellers will arrange their production or business not in line with the market but the price determined by the government.

However, a pricing system totally oriented to the market is not the preferred solution of many experts.

Han said that as China's oil products still have a long way to go when becoming mature enough, totally depending on the market to decide the price must lead to blindness.

He suggested that China's oil pricing system should represent both the timing changes in the international market and the demand and supply of the domestic market.

More importantly, it should be able to guarantee stable supply for the domestic demand, he said.

Therefore, as a special commodity linking closely to people's daily life, the government should have the ability to affect the price when necessary, he said.

Sources said that the Chinese government is making research on reforming the oil pricing system. Some steps have been taken now as the government begins to raise the oil product price and plans to impose a fuel oil tax, said Niu.

Source: Xinhua

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