Beijing increases fuel price, orders rise in output

Beijing has implemented a long-awaited fuel price increase to reduce losses at the nation's oil refiners and distributors and ordered them to raise output to keep pace with demand and relieve shortages.

The National Development and Reform Commission last night raised the guidance retail price of petrol by 9.1 per cent to 5,980 yuan a tonne and diesel by 9.96 per cent to 5,520 yuan a tonne, effective today.

The top economic policy planner said it would also raise the ex-factory price of liquefied petroleum gas and prices of natural gas used by industries and the vehicle sector.

However, it did not give the amount of the increases and the effective date, saying only they will be implemented soon.

This is the first time Beijing has raised petrol and diesel prices since May last year. The last time it increased natural gas prices was in December 2005.

The move, long delayed due to concerns high fuel prices would stoke inflation, will be of most benefit to the nation's largest oil refiner, China Petroleum & Chemical Corp (Sinopec), and to a lesser extent PetroChina, the second-biggest refiner.

On the other hand, the rise in the gas price will benefit PetroChina the most, followed by Sinopec and CNOOC.

The NDRC said preliminary calculations suggested the fuel price rise would result in a 0.05 per cent increase in monthly inflation.

Railway freight rates and civil aviation fuel surcharges will be adjusted accordingly, it said without giving details.

'Even after this price rise, refined oil prices are still at such a level that some oil refiners will still suffer from losses ... but some local refineries should [find it economically viable to] resume operations,' it said. 'Meanwhile, PetroChina and Sinopec should increase diesel imports and limit exports to ensure sufficient supply.'

The price increase was announced after China Petrochemical Corp, Sinopec's parent and the nation's largest oil refiner and fuel distributor, said it would raise refining throughput about 8 per cent next month to relieve fuel shortages.

The move is likely to incur more losses for the company amid soaring prices of crude oil, which the company refines into fuel products.

China Petrochemical said it planned to raise refining volume 800,000 tonnes to a record level this month. A spokesman said the normal volume for the month exceeded 10 million tonnes.

China Petrochemical's initiative follows widespread fuel rationing in coastal regions that has spread inland to regions such as Anhui province, according to Reuters.

The development highlights mounting challenges the government faces in balancing interests between consumers and oil companies amid spiralling crude oil prices.

Many local independent refineries have suspended production because, unlike integrated players such as Sinopec and PetroChina, they cannot use profits from oil and gas sales to subsidise refining losses.