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Falling oil price offers opportunities to narrow price gap

(Xinhua)
Updated: 2006-10-05 09:07

Chinese experts foresee opportunities to narrow the gap with foreign prices of processed oil with the decline of international crude oil price.

Prices for light, sweet crude oil for November delivery in the New York Mercantile Exchange (NYMEX) dropped to 58.30 US dollars per barrel on Wednesday, the lowest since February 16.

Niu Li, an economist with the State Information Center, said if the international crude oil price continues to fall and remains at a lower level, the Chinese government should accelerate its pricing reform on processed oil.

Despite soaring crude oil prices, the National Development and Reform Commission, which regulates domestic prices for processed oil according to changes on the world market, has kept prices relatively low, resulting in losses for processors and consumer waste.

The Chinese government has endeavored to map out a pricing system for processed oil in line with China's own conditions. However, the hike in international oil price leaves little room for the government.

China has raised the price for processed oil products nine times since July 2003, including twice this year.

A preliminary move to lift the prices of processed oil, while setting up a mechanism to offer subsidies to disadvantaged communities and public service sectors and levy special fees on oil producers who sell domestically produced crude oil over a certain level emerged last March.

Niu said that the current decline in international oil prices, which is shortening the gap between domestic and international prices of processed oil, will offer a good opportunity for the government to launch the next steps of reform.

However, Niu emphasized the government should still wait as there still lies a possibility of rebounding international oil prices.

China imported 95.8 million tons of crude oil in the first eight months this year, up 15.3 percent from the same period last year and 25.75 million tons of processed oil, up 25.7 percent.

The current international oil price leaves little space for China to reduce its domestic processed oil price and only when the international price continues to fall and remains at a low level for a while would the timing for China to close its gap on international price come, said Hou Jixiong, a researcher with the Guotai Jun'an Securities Co Ltd.

Yan Kefeng, a senior analyst with Cambridge Energy Research Associates in China, predicted that the international oil price may drop further in the next few years with expected growth of global oil production capacity.