Chinese Mandarin - New oil-pricing regime still leaves out public

BIZCHINA / Impact

New oil-pricing regime still leaves out public

By Ma Hongman (China Daily)
Updated: 2007-02-08 10:09

The much hyped oil product pricing regime has finally been hammered out
and gone into effect.

According to the National Development and Reform Commission, China's top
economic planner, the country has formally adopted a pricing regime that
takes into account the average international crude oil prices, tariffs,
profits, logistics and refining costs.

The new regime is based on the crude oil prices in Brent on the North
Sea, along with Dubai and Minas, Sumatra. This replaces the previous peg
to oil product prices in Singapore, Rotterdam and New York.

In recent years, frequent price fluctuations on the international oil
market have had an increasing impact on the domestic market, which has to
satisfy a rapidly growing demand from domestic consumers.

The new regime is more closely linked to international price
fluctuations. Since the refining costs will be included, the regime will
ease pressure on China's unprofitable refineries.

Meanwhile, according to the new regime, when international oil prices are
high, the profit margin for domestic refineries will be adjusted in the
interest of consumers.

Despite the improvement in oil product pricing, the new regime, which is
more flexible and market-based, will not solve the fundamental problem of
an unbalanced domestic oil market.

The most prominent feature of China's oil market is the sellers'
monopoly. The three State-owned oil conglomerates PetrocChina, China
National Offshore Oil Co (CNOOC) and China Petrochemical Corp (Sinopec)
have monopolized all links in the chain of oil production, from
exploration and purchase of crude oil to retail sales.

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