Low oil prices to continue

China is not about to significantly hike its low oil prices despite the perverse results that arise from the current pricing system, a top economic official was quoted as saying.
"Gasoline just rose to 4.0 yuan a liter, and taxi drivers started protesting," Li Rongrong, the head of the powerful State Assets Supervision and Administration Commission, said Monday.
"Do you think we dare raise the price even more?"
Companies such as oil majors Sinopec and PetroChina, which are directly under the control of the Central Government, have a special responsibility to keep the national economy stable, he argued.
Li, whose commission is in charge of all the major State-owned enterprises, was speaking to a group of government-appointed managers.
Li's remarks came despite growing evidence that the low domestic oil prices are having disastrous economic results, costing refiners huge losses and resulting in massive smuggling especially to Hong Kong.
In the first half of the year, the two top producers Sinopec and PetroChina suffered a combined 46 billion yuan (US$5.7 billion) in losses because of low domestic oil prices, Li said.
The current pricing system has forced China's domestic refining companies to buy on international markets and then sell at up to 40 percent below cost.
The disadvantages of the system are apparent at a time when international prices hover around US$64 a barrel.
Nevertheless, the system exists because the Central Government wants to hold down inflation, a priority for every single Chinese Government over the past half century.
The difference between prices of oil inside and outside the mainland's borders has also led to rampant smuggling, causing South China's Guangdong Province, otherwise an economic powerhouse, to nearly run out of fuel, the report said.
This is because smugglers in Guangdong transport an estimated 1,200 tons of oil daily across the border to Hong Kong, where oil is between 2.5 and three times more expensive, Li said.
According to an alternative explanation described in the media previously, refiners have slowed or stopped production in order to stem the financial losses under the current rigid pricing system.