Beijing hits oil lines

Rising global oil prices are straining relations between economic policymakers in Beijing and the nation's largest state-owned oil and gas companies as long queues for gasoline begin forming around the country.

The National Development and Reform Commission - the economic planning agency that sets energy policy - issued a notice on Saturday ordering PetroChina (0857) and China Petroleum & Chemical Corp (0386), otherwise known as Sinopec, to refrain from withholding oil supplies to distributors.

It called on the two oil majors to use all possible means to ensure the market is well supplied and "work hard to boost their oil-refining output."

It also urged them not to stop or hold back supplies to private distributors.

The notice came hard on the heels of reports that the two firms halted supplies to private distributors to ensure supplies for their own fueling stations and to cut costs in the face of mounting international oil prices.

A recent spike in global oil prices is eating into the margins of oil and gas companies in the country.

Crude prices hit a historic high of US$78.21 (HK$610.03) per barrel on world markets Wednesday before easing slightly to US$75.48 on Friday.

Media reports suggest major mainland oil producers filed several applications early last month seeking permission to raise gasoline and diesel prices. But their appeals were unsuccessful.

Many speculated that the move by PetroChina and Sinopec to hold back the supply of oil products was a reaction to the decision and represented an effort to mitigate the subsequent losses in revenue.

Operations at a number of refineries run by the two oil firms have also been suspended for maintenance, straining supplies around the country further.

According to Bloomberg, more than 40 cities are experiencing major shortages. Guangdong, Hunan, Shandong and Shanghai are particularly hard hit.

Gasoline retails at about 4.5 yuan (HK$4.65) per liter. Summer months are also typically peak periods for oil demand.

The NDRC said any firm that halts or restrains oil supplies or raises factory, wholesale or retail prices will be contravening state regulations.

Policymakers warned that anyone who "spreads false information on price hikes or hoards will be dealt with severely."

State media reported that NDRC officials agreed the request to increase gas and diesel prices was reasonable but that, from the point of economic stability, they do not feel it is possible to review prices now.

In January, Beijing adopted a new pricing mechanism for refined-oil products, offering a fixed margin for refiners based on global crude prices.

There are fears that high oil prices will also put upward pressure on consumer prices, which hit a 33-month high in June, rising to 4.4 percent.

The People's Bank of China's target inflation ceiling is 3 percent.

PetroChina and Sinopec operate half the country's retail filling stations, while the rest are privately owned.