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Chinese refiners promised reform of fuel prices

March 13/2012
(news.flanders-china) -- The central government is determined to reform the domestic fuel price-setting mechanism this year after years of concerns that such a move would stoke inflation. The timing of the reform will be key to determining profitability of Chinas oil refining industry, which is dominated by state-controlled PetroChina and China Petroleum & Chemical (Sinopec).

"Efforts on the reform are on and we are striving to push ahead with it," Liu Tienan, Director of the National Energy Administration (NEA), said on the sidelines of this years National Peoples Congress (NPC). His comments come two weeks after Zhou Wangjun, Deputy Director of the Pricing Department at the National Development and Reform Commission (NDRC), told Xinhua that reform on energy pricing would be launched this year "at the right time, according to economic conditions". Premier Wen Jiabao said in his annual government work report that Beijing would reform the pricing mechanism of refined oil products and natural gas. It is thought it will include a greater frequency of price adjustments and give oil companies the right to set their own fuel retail prices in keeping with international crude oil price movements.

Currently the government restricts price rises, squeezing the refineries margins. A Sanford Bernstein research report said Sinopec needed a gross refining profit margin of at least USD4 a barrel to break even on its refining operation. It relies heavily on profits from upstream oil and gas production to offset the losses. It made a margin of USD1.50 a barrel in last years first half, the report said. The brokerage expects the reform to give refiners gross margins of USD4 to USD5 a barrel when crude prices range from USD100 to USD120 a barrel, the South China Morning Post reports.
Author:Anna Larionova
Category:General News
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