China Calls for Warning System

China Calls for Warning System to Ensure Oil Supplies
By Xiao Yu
Nov. 25 (Bloomberg)

China urged local governments to set up an early warning system to ensure sufficient oil supplies at filling stations, which face shortages across the nation, the state-run Xinhua News Agency reported.

The Ministry of Commerce ordered local authorities to monitor oil supplies and work out measures to cope with emergency shortages, Xinhua said yesterday. The report didn't elaborate on requirements for the warning system.

Demand for crude oil in China has exceeded output as some refineries cut production because of soaring costs and government-capped fuel prices. The nation's crude oil imports also fell to the lowest in eight months in October as prices climbed to records.

``China's fuel shortage will continue unless the government improves its pricing mechanism and raises domestic fuel prices,'' said Wu Jun, a Shanghai-based analyst with China International Futures (Shanghai) Co. in a telephone interview today.

Premier Wen Jiabao last week said he would ask refiners to expand capacity to turn crude oil into fuels to run cars and factories. Some of the nation's refineries aren't running at their maximum operating rates, Wen said Nov. 21 in Singapore, where he attended the East Asia Summit.

``Refiners lack incentives to produce more after crude oil prices rose to a record. Domestic fuel prices are lower than international prices'' because the government determines prices, China International's Wu said.

Fuel Supplies

China's government has urged refiners including China Petroleum & Chemical Corp., known as Sinopec, to ensure fuel supplies are sufficient, Xinhua reported. Many regions still face ``tight diesel supplies,'' Xinhua said, citing a notice from the Commerce Ministry.

China increased fuel prices by as much as 10 percent from Nov. 1 in what the government said was an ``urgent step'' to help the nation's oil refiners cover rising costs.

``The increase of fuel prices is far from sufficient to cover the cost of rising crude oil,'' Wu of China International said today. ``Some refiners may take advantage of the fuel shortage to press the government for a fundamental change of its pricing mechanism.''