China is considering a new method for setting domestic oil product prices that could lead to more frequent adjustments aimed at easing the sort of shortages that have hit the south of the country, a newspaper reported on Saturday. China has raised retail prices of diesel and gasoline three times this year, but the increases have fallen far short of the spike in global prices.
This has made it difficult for China's refiners to turn a profit and has encouraged them to boost exports at the expense of domestic sales. The result has been widespread shortages recently in the south, with drivers queuing for hours for petrol.
To tackle the problem, top planners at the energy policy-setting National Development and Reform Commission (NDRC) called in oil firm executives on August 13 to discuss the future of its pricing system.
The China Business Post said the meeting discussed updating a formula that usually leads to price changes coming at least a month apart.
"According to sources, the reform measures are to gradually relax the power to set oil product prices, moving from a lagging set price to a real-time price by reducing the time span from a one-month tracking method to two weeks or even less," the paper said.
It implied, though did not say so explicitly, that more frequent monitoring would lead to more frequent price adjustments that would benefit oil giants such as Sinopec and PetroChina
"This will, to a certain extent, ease the pressure that state oil companies are currently facing," the paper said, adding the new formula would also make companies more aware of the need to uphold national energy security.
Analysts say more frequent price adjustments would reduce the incentive to hoard fuel, one factor behind recent shortages.
The official Xinhua news agency has blamed the shortages on typhoons that disrupted shipments and floods near refineries in China's north-east. But it has also noted hoarding.
China has been opening its planned economy for more than 20 years, but is reluctant to cede control of energy prices.
In part this is because of fears costlier fuel could spark inflation - one of the factors behind 1989 student demonstrations that ended with a military crackdown in Tiananmen Square - or hurt vulnerable groups such as farmers.
China's economic boom also needs cheap oil.
But global oil markets have surged more than 50 percent so far this year. With China's product prices up just 15 percent in the same period, industry losses mounted to a net 4.19 billion yuan ($517.3 million) in the first half.
Although the government owns majority stakes in Sinopec and PetroChina, both companies are listed overseas.
With foreign investors scanning the balance sheets of their listed arms, analysts say the refiners are increasingly reluctant to subsidise Beijing's policy and have sought to put pressure on the government by trimming supplies to loss-making home markets.
Closed service stations and fuel rationing have plagued the manufacturing heartland of Guangdong over the past few weeks.
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