Refiners pin hopes on subsidies to cope with retail price controls

The latest surge in international crude oil price and state fuel price controls are rubbing salt into the wounds of already struggling mainland energy refiners.

Unable to lift retail prices in the face of surging oil costs, the refiners have to rely on subsidies from Beijing to keep their heads above water. The big question is whether those subsidies will prove generous enough.

Benchmark one-month oil futures in New York jumped a whopping US$11 last Friday, closing at an unprecedented US$138.54 a barrel. Some analysts forecast it will reach US$150 soon and possibly even touch US$200 by year-end.

While some analysts have argued that the oil market is in a speculative bubble fuelled by profit-hungry commodity funds, others say market fundamentals support the 44.34 per cent price gain in oil futures since the start of the year.

Citigroup on Tuesday raised its oil price forecast for this year to US$117 a barrel from US$95, and to US$122 from US$88 for next year. The brokerage lifted its long-term price forecast to US$100 from US$75.

Citigroup agreed there were fundamental reasons behind the surge in oil prices, driven by supply estimate shortfalls from non-Organisation of Petroleum Exporting Countries and tightening supply.

Merrill Lynch has raised its forecast for oil to US$115 from US$102 this year, and to US$107 from US$90 next year, with the long-term estimate lifted to US$90.