Fine for overcharging

The accusation about the oil giants came shortly after the country's economic planner and price regulator, the National Development and Reform Commission (NDRC), had asked local governments to crack down on gas stations selling diesel above the state-set prices.

Previously on November 23, four affiliates of Sinopec and PetroChina were fined for overcharging.

The NDRC said these acts had exacerbated the diesel shortage and disrupted market order.

The behavior of the two oil giants has fueled beliefs shared by private oil refineries that oil giants like Sinopec and PetroChina were hoarding diesel to create shortages to force the government to lift the diesel price.

China's oil price-fixing mechanism, adopted in 2009, rules that domestic oil prices are allowed to change only if the international crude prices rise or fall more than 4 percent in 22 working days.

Ceiling retail prices of diesel and gasoline are set by the NDRC, but the wholesale prices are decided by oil companies Sinopec and PetroChina themselves.

As international crude prices are on the rise, China's diesel wholesale prices are higher than the retail prices, which forces private refineries to suspend production to avoid losses.

This, industry observers say, also exacerbated the diesel shortage that forced trucks to line up in gas stations for refilling.

Currently, more than 2,000 privately owned gas stations in southern China have run out of diesel, according to a survey conducted by the China Chamber of Commerce for the Petroleum Industry.

Lin Boqiang, director of the China Center for Energy Economic Research at Xiamen University, said China should further upgrade the current oil price-fixing mechanism to let price play its full role in the market.

The two oil giants, however, have cited the rising demand for diesel in the domestic market as the main reason for the shortage.

China has planned to reduce energy consumption by 20 percent per GDP unit during the five years between 2006 and 2010.

As the deadline approaches, some provinces have taken emergency measures,such as limiting power supplies to cut energy consumption.

This move has forced factories to turn to diesel for power, pushing up the demand dramatically.

In order to relieve the diesel shortage, both Sinopec and PetroChina have announced the speeding up of production and importing diesel from overseas market.

The refining of crude oil by Sinopec hit a record high of 17.6 million tons in November, sources with Sinopec said. This has added extra diesel production of more than 300,000 tons.

Also, Sinopec imported 280,000 tons of diesel in October, attempting to meet the demand.

In the meantime, diesel exports have been suspended to allow for first meeting the domestic demand.

As a result, diesel stocks of Sinopec have rebounded since November 19, said Xia Shixiang, deputy general manger of Sinopec's sales company.

Xia predicted that the diesel shortage would be relieved by the end of this month.

(Xinhua News Agency December 2, 2010)