FILE PHOTO: Oil and gas tanks are seen at an oil warehouse at a port in Zhuhai, China October 22, 2018. REUTERS/Aly Song/File Photo
May 21, 2020
By Muyu Xu and Tom Daly
BEIJING (Reuters) – Researchers at an energy think tank affiliated with China National Petroleum Corp (CNPC) are calling for the reform of China’s fuel pricing system by removing the floor price or allowing state companies to spend the money to boost oil output.
China adjusts its retail fuel prices to reflect Brent crude oil prices between a band of $40 to $130 a barrel. When Brent prices are below $40 – they are currently at $36.52 – retail gasoline and diesel prices will not be cut lower by the state planner, even if oil prices drop further.
Under the current scheme, Chinese oil refiners are required to pay the profit between the fuel and crude to a central government fund. However, researchers at CNPC’s Economic and Technology Research Institute (ETRI) propose the government remove the retail fuel price floor or redirect the money from the fund toward oil exploration.
“China should remove the floor price scheme or exempt oil companies from submitting the margins to the fund at an appropriate time. Part of the money can be invested by oil firms into exploration sector to boost crude oil output,” Jiang Xuefeng, a vice director at ETRI, said on Tuesday.
The current retail price scheme funds are currently used to ensure oil supplies and the ETRI suggested it would be better spend on boosting domestic energy output.
The ETRI also gave estimates of China’s oil imports and fuel consumption in 2020.
It expects China’s crude oil imports to increase by around 2% in 2020 amid lower prices, while apparent crude oil consumption is seen rising between 1% and 2%.
China’s refined oil products demand is expected to fall by about 5%, the first contraction since 2000, as the coronavirus outbreak shut industrial plants and froze travel.
The coronavirus pandemic reduced refined oil products consumption by 23% in the first quarter, ETRI said
China’s natural gas consumption is estimated to rise 3% this year to 313.5 billion cubic metres, the slowest annual growth in two decades, as industrial plants and power generators are expected to slash gas consumption amid the coronavirus outbreak.
(Reporting by Muyu Xu and Tom Daly; Editing by Christian Schmollinger)