Any boost in prices following OPEC's latest decision to cut production might,
for the moment, be a relief for Chinese officials in charge of domestic oil
prices - who were recently blamed for being too slow to bring down domestic oil
prices in line with declining global rates.
However, this is definitely not the end of the story. Without concrete
efforts to accelerate pricing reform, the National Development and Reform
Commission (NDRC) will be a frequent target of criticism as long as domestic oil
prices lag far behind the trends in the international market.
In the last three months, international oil prices have fallen 25 per cent,
to below $60 a barrel. Such a global oil price plunge has even prodded the
Organization of Petroleum Exporting Countries (OPEC) into joint action to defend
US$60 as its new minimum international price.
For a major oil importer like China, the oil cartel's decision to raise
prices is certainly not good news. Ironically, the NDRC, the Chinese pricing
authorities, might find it helpful to counter public criticism.
To prevent supply fluctuations and inflation, the Chinese Government controls
the prices of major oil products and keeps them below the global level. The NDRC
raised domestic oil prices twice in March and May, in line with soaring global
rates.
Nevertheless, since global oil prices peaked in July, the pricing authorities
have made no response, leaving prices at the pump unchanged.
To cope with rocketing prices of crude oil imports, China has raised the
price for processed oil products nine times since July 2003, including twice
this year.
While high oil prices often give rise to complaints by domestic consumers and
enterprises, they are needed to sharpen the nation's energy-saving awareness.
Yet, the merit of high oil prices in this regard does not rule out the necessity
of flexibility in the pricing mechanism. And the Chinese Government also vowed
to make the oil pricing system more market-based.
Unfortunately, the wait-and-see approach of the NDRC has so far deprived
Chinese consumers of all the benefits of falling oil prices.
Some people from the domestic oil industry and even from the NDRC have argued
that even at the current domestic gasoline price, domestic refiners were still
making losses despite the drop in international oil prices.
But the fat profits netted by the country's oil giants in recent years
indicate that the industry as a whole is making big money.
A flexible pricing system is urgently needed to narrow the gap between
domestic and international oil prices.
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