Center

New oil pricing system fuels debate

(China Daily)
Updated: 2007-02-13 09:03

"We have not received an official notice from the authority about the pricing system adjustment," a Sinopec source told China Daily, on condition of anonymity.

"However, the two price hikes last year were partly based on the new mechanism. Therefore, it also makes sense to say the new system has been in place for a while."

System sparks debate

Confirmation that the new system is already in place has caused a stir.

Some argued the new mechanism could struggle to cope with certain functions like balancing supply and demand and reflecting the true value of global crude oil, because it is still subject to governmental mandate and adjustment.

An anonymous industry source told China Daily the new system had made little progress.

"I say that because the price system is still under tight government control and is supposed to protect themonopolyand guarantee the profit margins of State-owned major refiners such as Sinopec," said the source from a major local oil producer.

Chen Qingtai, former deputy director of the Development Research Center under the State Council, called recently for control on resource prices to be loosened, especially on the oil price.

"A more market-oriented oil pricing mechanism is needed to allocate natural resources and encourage energy efficiency," Chen said.

The government should loosen its grip on resource prices, which are key to curbing consumption and pollution, Chen said.

Those who support the new price mechanism, however, argued that it is a more scientific system.

Cao Xiaoxi, chief engineer at Sinopec's Economic and Development Research Institute, said the new oil product price system would assist Chinese refiners to reduce deficits arising from high crude imports and low prices on local oil products.

Angelina Lee Mei Leng, chief analyst at Platts inBeijing, told China Daily the new system was more scientific, based on the fact that it takes the crude oil price, refining cost and profits into consideration.