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Soaring global oil prices have led to small refiners drastically
cutting down on production - forcing Sinopec to fill the void.

Since the prices of refined oil products are set by the central
government, the refiners - private or local-government-owned - find it
unprofitable when the price of crude is as high as is now. Crude prices
reached a record $93.80 a barrel at the New York close on Monday.

“Surging international crude prices are exerting mounting pressure on
the local market (by discouraging small refiners). We are already
running at full capacity to ensure fuel supply,” Mao Jiaxiang, vice-president
of Sinopec Economics & Development Research Institute, told China
Daily Tuesday.

Sinopec is Asia’s top refiner, feeding the bulk of fuel consumption in
China. But due to capacity limitations at its plants, there is a rising
gap between demand and supply.

Mao pointed out that fuel shortages are mainly triggered by the
production drop at medium- and small-sized refiners scattered around the
country, which contribute 5 to 10 percent of the country’s supply.

The National Development and Reform Commission (NDRC), the top economic
planner, keeps a tight lid on domestic fuel prices to fend off
inflation, only allowing refiners to set prices within an 8 percent band of a
government-imposed benchmark.

Sinopec will have more refining capacity on stream next year, which
will help ease supply pressure, Mao said.

This year, it is believed Sinopec may import more oil products from
abroad if necessary. The company imported 60,000 tons of gasoline in
September and sold it at a lower price.

Gasoline retailers raised prices by 2.92 percent in the first nine
months after crude costs climbed, the NDRC said in a statement on its
website on Monday.

However, the NDRC said last month that energy prices will not be raised
“in principle” this year after the consumer price index (CPI) hit a
10-year high of 6.5 percent in August.

“As global crude prices and the CPI stay at high levels, it is possible
for the authorities to seek a compromise by not raising fuel prices
but giving subsidies to major refiners at the end of the year,” said Niu
Li, an economist with the State Information Center affiliated to the
NDRC.

By Wang Yu