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CNPC, Sinopec push up oil prices to cut stockpiles - report

By Cai Muyuan (chinadaily.com.cn)
Updated: 2010-02-23 18:10
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Sales company pressures

The sales companies under Sinopec purchase gasoline and diesel with a transfer price. With Sinopec's transfer price raised 100 yuan a ton from Jan 20, the sales companies shouldered much more pressure.

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According to insiders, the sales companies are suffering a loss of dozens of yuan a ton from the price increases. But the increase in the wholesale price can reduce the sales companies' pressures and save them losses.

Liu said when the temperatures go up again, the use of oil in engineering infrastructure projects will speed up. However, in North China, the high diesel stock will continue pinching sales. If CNPC and Sinopec can secure the price rising momentum, the output and sales of local refineries will be encouraged.

Excess capacity feared

According to the latest market information, January's stocks of diesel, gasoline and kerosene of CNPC and Sinopec rose by 3 percent. Crude oil sales dropped by 6 percent to 18.5 million tons. The product oil market is shifting toward a supply-exceeds-demand growth mode, and the excess capacity in the oil refining industry is getting nearer, the newspaper reported.

The main reason for excessive product-oil storage is the slowdown in growth of demand, especially in diesel consumption. In January, diesel sales dropped by 11 percent. In 2009, the domestic consumption of diesel was 138.59 million tons, a 0.2 percent year-on-year decline. It was the first drop in diesel consumption since 1998.

The aggressive expansion of oil refining by CNPC and Sinopec is another cause for the excess. In 2009, the newly increased one-step refining ability of crude oil reached 45 million tons per year, and refining capacity reached 483 million tons per year. China is the second-largest oil refining country, after the United States.

According to Dai Jiaquan, a researcher with CNPC, China's refining capacity will reach 750 million tons in 2015. Demand is expected to rise 4.9 percent in five years and reach to 530 million tons by 2015. This suggests that the oil refining industry will have 220 million tons of oversupply.

CNPC and Sinopec show no signs of slowing down expansion. Sinopec announced that by 2010, its refining capacity will increase to 220 million tons from 190 million tons. CNPC plans to increase its one-step refining ability to 240 million tons per year and double its ethylene production ability to 7 million tons per year.

According to a report from China Business News, if the plans are realized, excessive crude oil supply will become a serious problem. The oil refining industry might run into a crisis of over-production suffered by the steel and cement industries.

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