Rocketing Oil Price Puts Pressure on China's Oil Giants

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Researched by Industrial Info Resources (Sugar Land, Texas)--Facing the rocketing international oil price and the end of the government-set limits to raising prices, the price of China's processed oil could rise accordingly, and an expert says the government could adopt a market-oriented pricing system.

A source from the Guangzhou subsidiary of China Petroleum and Chemical Corporation (Sinopec) (Beijing) said China's refineries suffer great losses when oil prices are higher than $65, which was the price before June 2007. Adding the low-retail price set in 2006, China's oil giants suffered a huge deficit in all of 2007.

The roaring oil price has forced China National Petroleum Corporation (CNPC) (Beijing), one of the most profitable companies in Asia, to apply for allowances from the government to make up for its losses in refining and oil imports.

Experts say that although Sinopec has made fairly large profits in previous years, it refines more oil; therefore it experiences more losses. China National Offshore Oil Corporation (CNOOC) (Beijing), although much smaller than CNPC and Sinopec, has avoided experiencing a deficit by mainly focusing in offshore oil drilling.

China raised the price of processed oil in November 2007 after four month of appeals from CNPC, Sinopec and CNOOC. The three oil giants were accused of bargaining with the National Development and Reform Commission (NDRC), the top price setter.

An official from the NDRC said January 3, 2008, that the $100 price may not last long and that the commission is not prepared to raise the price in recent period. China's record-high consumer price index is apparently NDRC's biggest concern. The commission set a rule in 2007 that all prices rises were banned in the second half of 2007 but broke the promise itself by raising the price of processed oil.

Oil expert Han Xuegong said the cause of last year's oil shortage was that China's oil-pricing mechanism is flawed because the price is set by the government and not the market.

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