Chinese Refiners Experience Major Deficit amid Record-High Oil Prices

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Researched by Industrial Info Resources (Sugar Land, Texas)--The China Petroleum and Chemical Industry Association has released a report, "Oil and Petrochemical Industry Economic Report, 2008 Q1," stating that China's oil and refining industry experienced a major deficit this spring because of the rising price of oil.

In the first two months of the year, 5,672 companies, or about 25%, in the industry lost $5 billion ($1 = 7RMB), 68% of which was lost by refiners. The accumulated profit was $11 billion, down 6.12% compared with the same period last year.

The association said that it isn't uncommon for Chinese refineries to buy expensive crude oil and sell it at lower prices, but the method has been greatly affected by the recent record-high prices of oil. For example, diesel is currently sold at $854.7 a ton at gas stations, but the wholesale price is $928.6 a ton.

The price gaps between crude oil and product oil, and that between wholesale and retail are burning out the industry. Other reports show that because of the gaps, demand of product oil is rising, aggravating the situation.

The government-set price is low mainly because the government does not want the price pressure to transfer to low-end markets and users when the CPI is trying to break the rein.

The government is giving allowances and policy advantages to the oil and refining industry to make up for the deficit. From April 1 to June 30, Sinopec and PetroChina (NYSE:PTR) (Beijing) will receive several billion dollars from the central government. A tax rebate will also be added.

Though refineries have seen large red numbers, the profit of the oil and natural-gas-drilling industry have risen 61.23%.

Industrial Info Resources (IIR) is a marketing information service specializing in industrial process, energy and financial related markets with products and services ranging from industry news, analytics, forecasting, plant and project databases, as well as multimedia services.