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China to Subsidize Oil Firms to Ease Shortage

China will offer subsidies to domestic oil companies to offset high international oil prices amid efforts to ensure market supplies, the nation's top economic planning agency said on Wednesday.

Many gas stations across the country are experiencing shortages, with refineries unwilling to raise output in light of the low, government-controlled domestic fuel prices.

Experts said the government should reform the oil pricing mechanism to reflect international levels and allow oil firms to transfer cost to customers.

The government will offer oil firms some profit rebates and scrap oil import duties to compensate them for losses at their refinery units, the National Development and Reform Commission (NDRC) said.

China raised the prices of gasoline, diesel and aviation kerosene by 500 yuan (US$67.6) per ton, almost a 10 percent rise, starting from November 1.

Light, sweet crude for January delivery on the New York Mercantile Exchange was down 99 cents to US$88.32 a barrel on Dec. 4. The price has risen about 50 percent so far this year, despite a recent retreat from it record high of US$99.29 a barrel last month.

The losses at oil refineries are still huge despite the fuel price rise and many local refineries still halt or reduce output, the NDRC stated.

As a result, supplies of fuel, in particular diesel, are still tight and some gas stations are still without supplies or only provide limited supplies, according to the NDRC.

China's oil consumption has been rising rapidly with the booming economy. Its crude consumption has jumped 6.8 percent year-on-year to 173.03 million tons in the first half of 2007, according to official figures.

To ease the shortage, PetroChina and Sinopec, the nation's two largest oil producers, are running at full capacity to increase output, especially that of diesel, and trying to draw on stockpiles as much as possible.

The NDRC ordered local authorities to step up market supervision and crack down on gasoline retailers that withhold stocks and raise prices without government authorization. It also ordered the setting up of an early warning system to tackle emergency fuel shortages.

(Xinhua News Agency December 6, 2007)

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