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Beijing under pressure to tackle oil shortages

Rising anger in China over spreading fuel shortages is increasing pressure on Beijing and the local oil majors to devise a new pricing policy to head off future crises over oil supplies to motorists.

The shortages have begun spreading north from Guangdong, in southern China, which has seen the longest petrol queues in recent weeks, to Shanghai, the country's commercial capital, and surrounding Yangtze delta.

Ma Yangbao, the manager of Oriental Dingwang, an independent petrol station in central Shanghai, said supplies from Petrochina, China's largest oil producer, had petered out over the last month to nothing.

“I can't even pay my workers' salaries,” he said, adding that even outlets owned by Petrochina had seen their daily supplies cut by 40 per cent.

Although Chinese officials have blamed typhoons for delaying shipments of imported oil, the root cause of the problem is disparity between global and local oil prices, analysts and industry executives said.

Fearing inflation and a backlash from motorists and farmers, the government has refused to allow local pump prices to rise in tandem with the global benchmark.

Global prices have risen by about 30 per cent this year but Chinese prices by about half that, leaving local refiners such as Sinopec suffering large losses on sales of imported fuel.

A Sinopec official in Beijing, speaking on condition of anonymity, said Wednesday the company had been forced by the government to order its refiners to produce fuel for the local market, even though it was not profitable.

“We are not a welfare outlet for the public - the only way out of this issue is to set up a market-based pricing system,” the official said.

Sinopec's dilemma also underscores the risks for foreigners investing in China's equity markets.

Sinopec is partially listed overseas with a responsibility to maximise returns for its global shareholders, but, as a state-owned oil company, is also enlisted in service of the government's broader policy objectives.

Guangdong has been worst hit by the shortages because it is distant from China's oil producing regions in the north and is more heavily dependent on imports.

Retailers such as Mr Ma who own petrol outlets unaffiliated with the three oil majors, Petrochina, Sinopec and CNOOC, have been especially hard hit, because they are last in the queue to receive limited supplies.

“The price of gasoline should be allowed to go up - why is it that countries like Singapore can handle the surging in global prices without a shortage?” he said.

“But at the same time, we also need to remove other barriers in the market, such as the monopoly on supplies enjoyed by the big three.”

A Sinopec sales manager in Shanghai, who asked not to be named, said the company's first responsibility was to ensure the company's own outlets were supplied.

Stephen Green, of Standard Chartered in Shanghai, said Chinese oil refiners had suffered an aggregate loss of Rmb4bn-6bn in the first half of this year.

“Wholesale reform of the energy pricing system now seems on the cards, although of course it will be gradual so it doesn't allow inflation to spurt,” he said in a note to investors.

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