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Crude oil plunge good for China economy: Analysts

(Xinhua)
Updated: 2008-09-03 17:53

"A falling crude price is no doubt good news for domestic oil refiners, whose profits were squeezed by high world oil prices and a relatively lower domestic price," said Zhuang Jian, an Asian Development Bank economist.

"Refiners can buy cheaper crude from overseas markets if the price fell.This will help them to reduce business costs and increase profit fundamentally."

The country's oil companies have been losing money for each barrel of foreign oil they refined and sold to domestic consumers as they could not pass on the increase under the government-set refined oil prices.

China Petroleum and Chemical Corporation (Sinopec), Asia's biggest oil refiner, for example, saw its first half net profit fall 73.4 percent over the same period last year, dragged down by big losses in its refining sector.

The leading refiner confirmed losses of 46 billion yuan ($6.7 billion) in its refining sector, despite receiving government subsidies of 33.4 billion yuan.

"Meanwhile, the surging oil price put the government in a dilemma. On one hand, oil refiners expect the country to lift the refined oil price. On the other hand, it fears a free refined price may spark severe inflation and harm other downstream industries," Zhuang said.

To solve the problem that resulted from soaring world crude prices, the government raised the benchmark gas and diesel oil retail prices to 6,980 yuan and 6,520 yuan, respectively, per tonne in June, up more than 16 percent and 18 percent. But it seems less useful to make up refiners' losses.

"In a long-run perspective, the country should adjust the refined pricing mechanism when the world price is relatively low.

"Raising the domestic refined price is not an easy job at present, which needs good timing. But a falling world oil price has made the issue easier to realize," said Zhuang.

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