PetroChina Co Ltd, the country's largest oil producer, said Thursday it is pushing for a more market-based fuel pricing mechanism after its first-half profit missed expectations due to tighter margins in its refining business.

The company, also the second-largest oil refiner in the country, reported net profit of 65.2 billion yuan for the first half ended June, up 29.6 percent from a year earlier, which trailed behind the median estimate of 68.7 billion yuan.

"Though the newly introduced oil-product pricing mechanism last year helped the company reverse our long-standing losses in the refining business, its deficiencies including the long pricing cycle has hindered the further marketization of fuel prices," said PetroChina's President Zhou Jiping at a media briefing Thursday.

Currently, adjustments in domestic fuel prices will only be triggered when the 22-day moving average of the changes in the international crude price fluctuates more than 4 percent. Zhou believes that the 22-day period is too long to reflect the real costs of fuel.

Fuel prices were lifted five times in 2009, but only once this year under the current pricing mechanism, which Zhou believes has led to the company's lackluster performance in its refining business in the first quarter as crude oil prices shot up during the period.

The Central Government curbs hikes in fuel prices as it tries to keep inflation under control. This curbs refiners' ability to fully pass crude oil costs to customers, limiting profits.

PetroChina's refining business posted a 68 percent decline in operating profit to 5.46 billion yuan from a year ago. Zhou said the company is coordinating proactively with the country's top economic planners to seek amendments for the existing pricing system.

The firm's exploration and production business posted an operating profit of 73.37 billion yuan, up 95 percent from a year ago as the average selling price of its crude oil surged to $72.42 a barrel from $42.46.

Zhou said the group is stepping up efforts to increase its overseas presence in the coming years by growing existing businesses and acquiring new assets near ongoing projects.

China Daily

(HK Edition 08/27/2010 page3)