Oil price increases unlikely to cause inflation

Oil price increases unlikely to cause inflation
By Wang Ying (China Daily)
Updated: 2006-05-31 08:54

Following the price hike last week, China's top two oil companies, PetroChina and Sinopec, both said the move could cut their refining losses, and that it reflected the government's decision to move domestic prices closer to international ones.

"The 500-yuan (US$62.5) increase is big, and I can sense the government is showing a determination to change the pricing mechanism," PetroChina Vice-Chairman Jiang Jiemin was quoted by Bloomberg as saying.

Following the price increase, retail pump prices in China are about 27 per cent lower than those in the United States, which are about US$2.9 per gallon on average.
PetroChina recorded a loss in refining and marketing of 19.8 billion yuan (US$2.5 billion) last year.

Sinopec had a 7.88 billion yuan (US$985 million) operating loss from refining in the first quarter.

The oil price increase obviously will hurt users, but will also encourage people to save energy and improve efficiency, experts said.

The Chinese Government earlier this year announced plans to subsidize economically vulnerable groups, such as the farmers and taxi drivers, to cushion them against the rising costs.

Beijing last week increased taxi fares by about 25 per cent to pass on the oil prices increase to users.

"With oil prices on the rise, the higher costs will push consumers to choose energy-efficient products, which will help the country improve energy efficiency by 20 per cent by 2010," Zhou said.

Li Jun, 32, a Beijing-based journalist said he had planned to buy a bigger car, but rising gasoline prices have led him to change his mind. He now wants a small-sized car.

Zhou said if global crude oil prices maintain their high level of about US$70 per barrel, there is room for the Chinese Government to raise domestic oil product prices even further.

Crude oil reached a record US$75.35 a barrel on the New York Mercantile Exchange last month, the highest since trading began in 1983.

Industry analysts have predicted global oil prices are unlikely to drop below US$50 per barrel in the near future.

The International Energy Agency, a Paris-based advisor of 26 oil-consuming nations, forecasts China's oil demand this year will rise by 5.3 per cent to 6.94 million barrels a day.

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