China fuel price hike not enough

Oil companies have claimed the recent rise in Chinese gas, fuel and diesel prices is not enough, and that domestic oil prices would have to increase by 3 or 4 Yuan per liter to reflect the international price. The oil price inversion between China and the world is still huge even after the recent increases -- 4,500 Yuan per ton – Tootoo.com has learned.

China's National Development and Reform Commission announced the increase on diesel prices by 1,000 Yuan per ton, and aviation kerosene prices by 1,500 Yuan per ton on June 19, 2008. As a result, the price of 93 octane petrol, used most by private cars, increased by 0.8 Yuan at least. The price of 93 octane petrol in Beijing is 6.2 Yuan per liter now, up 0.86 Yuan

Concerning the Statistics provided by the State Statistical Bureau and China Petroleum and Chemical Industry Association, in the first quarter of 2008, China's crude oil consumption is about 91.8 million tons, a year-on-year rise of 8%; Over the same period, China's local production of crude oil is 46.8497 million tons, a year-on-year rise of 2.2%.In other words, domestic crude oil production can only meet the consumption in half, and the other half must be resolved through imports. China has a degree of dependence on oil imports as high as 50 percent. Moreover, China's consumption is still accelerating increasing.

According to Tootoo Energy, in the first quarter of 2008, China's net crude oil imports are 44.95 million tons, a year-on-year rise of 14.9%, continuing to maintain rapid growth. Net imports of refined oil reached 5.47 million tons, a year-on-year rise of 31.8%.

In the 100 U.S. dollars high oil prices, China's refined oil consumption hit a record high growth rate. This is mainly because China's crude oil and refined oil are both in the "price inversion", which stimulates China's consumption on extraordinary oil and refined oil. Furthermore, serious loss of oil refining enterprises will further increase China’s oil and refined oil supply shortage.

Since total oil supply can not be expanded quickly and effectively, the only way to balance market supply and demand is demand management, such as oil prices increases, the introduction of fuel tax, prohibitive amount and supply plan.

Oil price increases or the introduction of fuel tax will directly increase the production costs of the "high energy consumption" enterprises, compress their profit margins, as well as curb their speeding expansion correspondingly. From a macro perspective, this will slow down China’s GDP growth rate. However, high oil price can lead businesses and households to energy saving, waste combating, emission reduction and environmental protection.