Oil Recovery Only Normal

China's oil sector has no reason to be overly optimistic, although it reported great achievements during the first half of the year.

A senior government official said favourable conditions during the period represent merely a "normal recovery."

Li Yongwu, director of the State Administration of Petroleum and Chemical Industries, attributed improvements to price hikes on the international oil markets.

"But high oil prices also put a squeeze on the country's oil sector,'' Li said.

According to the administration statistics, the petroleum and chemical sector reported a profit of more than 40.3 billion yuan (US$4.86 billion) during the first six months of the year, compared with approximately 10.1 billion yuan (US$1.22 billion) in the same period of 1999.

Li said the sector, especially oil producers, benefited significantly from oil price hikes on the world market.

Oil prices on the world market exceeded US$30 per barrel during the period from around US$24 per barrel at the end of last year because of a slash in output implemented by the Organization of Petroleum Exporting Countries, the world oil cartel.

The Chinese Government has allowed oil prices on its home market to fluctuate for more than two years, in accordance with the international market.

Li said the country will depend more heavily on oil imports because of increasing domestic demand.

The country imported about 33.2 million tons of crude oil during the first six months, up 15.6 million tons from the year-ago period.

Oil analysts predict that the country's oil imports will reach 50 million tons this year.

China has been a net oil importer for more than six years.

But high oil prices are a "mixed blessing'' for the oil sector, Li said, because they bring pressure to inefficient domestic oil refineries.

Li said some refineries are running in the red because of rising oil costs.

Oil prices on the world market are now hovering at US$27 per barrel.

Prices of oil products surged on the home market following the oil price increases.

The State Development Planning Commission has increased oil product prices four times this year.

In Beijing, the price of 93-octane gasoline, the most used fuel for vehicles in China, is more than 3 yuan (US$0.36) per litre.

Increases in oil product prices have given a hand to the struggling oil refineries.

But the commission has announced that the increases are not designed to relieve the refineries' burdens. Instead they were allowed to bring the oil product prices on the home market into line with changes on the world market.

Oil analysts said the sector's rebound from high oil prices is fragile because of volatility on the world oil market.

They urged domestic oil producers and refiners to sharpen the competitive edges while oil prices remain high.

Li Yizhong, president of the China Petrochemical Corp, one of the country's oil giants, said the corporation will intensify its efforts in technical upgrading and in reducing production costs during the second half of the year.

The corporation, which expects to list on an overseas stock market, doubled its profits to 6.7 billion yuan (US$807 million) during the first of the year.

"Generally speaking, the oil sector is expected to have upbeat prospects this year,'' Li said.

"The country's rapid economic growth, which resulted from the central government's active fiscal policies, also stimulated domestic demand for oil products,'' Li said.

The country's oil product demand increased by 5.5 million tons to 54.5 million tons during the first six months.

The country's gross domestic products grew by 8.2 per cent during the period.

The oil sector closed 111 small oil refineries each with an annual capacity of less than 1 million tons of production across the country during the period, contributing considerably to reducing the surplus in the country's oil refining capacity.

Li pegged oil refining capacity at about 220 million tons this year and 200 million tons of crude oil will be processed.

He said the central government's continuing efforts to control oil product imports and to boost exports, and the government's suspension of oil product imports about two years ago led to this year's successes.

A 15 per cent export-tax rebate also encouraged domestic oil refineries to export more oil products.

During the first half of the year, oil product exports rose by 40.3 per cent to nearly 3.3 million tons.



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