China still researching oil price reform details

BEIJING, Mar 11 (Reuters) China is still researching the details of long-awaited reforms to its pricing system for refined oil products, and wants to look into affordability and market demand, a senior policy official said on Saturday.

A system of tight state-set caps have kept the country's fuel prices among the lowest in Asia -- but pushed its refiners' balance sheets into the red and led to shortages as they tried to limit loss-making domestic sales and boost exports.

The government has pledged to reform the system as part of an energy and resource saving drive, and to bring prices more in line with international markets.

''The pricing system for energy products must be reformed and we are now studying this,'' Jiang Weixin, vice-chairman of the energy-policy setting National Development and Reform Commission, told a news conference.

''As for how much the prices of some energy products will be increased, what mechanism will be adopted and when it will be made public, we still need to do further evaluation, and research aspects like market demand and affordability,'' he added.

The new system is expected to tie fuel prices to fluctuations in international crude costs, but market players are keen to know how the linking mechanism will work, and how fast Beijing will move to close the gap between Chinese and world prices.

Local media have reported that the changes could be unveiled later in March, once the 10-day annual session of China's largely ceremonial parliament, when delegates meet to discuss and improve Communist Party policies, has closed.

But officials are worried that higher energy costs could spark inflation or cause social unrest, particularly among hundreds of millions of rural poor, and arguments over the extent of reform might hold up the new plan.

The China Securities Journal on Tuesday quoted an unnamed source at Sinopec, the country's top refiner, as saying that domestic prices, which have been unchanged since July, could rise more than 20 per cent.

But most analysts have expected Beijing to take a series of more modest measures to bring fuel prices gradually in line with global markets.

REUTERS SD HS1707