China wholesale diesel up on retail price rise talk

China's wholesale diesel prices climbed to record highs on Friday on speculation that Beijing would raise retail fuel rates for the first time in four and a half months, despite a pledged price freeze to combat inflation.

The reemergence of some sporadic diesel fuel rationing along China's booming eastern coastal routes revived memories of last November, when Beijing increased motor fuel prices by 10 percent -- its first increase in 17 months -- in order to get refiners to end a worsening supply crisis by increasing sales.

Officials at Sinopec Corp and PetroChina brushed off the likelihood of another supply squeeze thanks to increased productions and imports, even though $110 a barrel crude is causing them mounting financial losses for imports and sales within China, where regulated prices have still low.

But the rising wholesale prices once again show state oil firms' defiance of Beijing's rigid fuel price control.

"With international oil prices so high, market sentiment is nervous. Dealers are reluctant to sell on expectations of a possible fuel price hike," said an official with the sales unit of an oil major in Shanghai, who declined to be named.

Beijing sets ex-refinery and retail fuel prices and enforces these rigidly through its web of local pricing agencies, but leaves wholesale prices -- rates Sinopec and PetroChina quote to bulk consumers and hundreds of independent dealers -- largely untouched, handing the oil duopoly massive market power.

Diesel was last quoted at a record 6,400-6,500 yuan ($901-$915) per tonne in Shanghai and southern Guangdong, about 7-9 percent above the state-set retail ceiling, suggesting market expectations for an official price rise around that range.

In a speech released at the opening session of China's parliament last week, top economic planner the National Development and Reform Commission ruled out any near-term increase in regulated gas, power or fuel prices as Beijing battles against inflation now at near a 12-year high.

But oil traders in China seemed to put little faith in that promise, especially as the high-profile National People's Congress begins to wind down. Premier Wen Jiabao made a similar promise just one week before the last price increase on Nov. 1.

Sinopec especially has been hard hit by China's reluctance to let domestic motor fuel prices keep pace with the soaring cost of imported crude. The company loses 2,000 yuan on each tonne of gasoline and more on diesel with crude at $100 a barrel, an official said last week. Crude this week hit a high of $111.

Another regional marketing official, with Sinopec Corp, said his firm had halted sales to independent dealers while only guaranteeing supply to key bulk end users such as bus firms, public security, factories and hospitals.

Truck drivers plying between east Chinese city of Ningbo and neighbouring province Fujian say they have experienced sporadic diesel rationing since last week, with some lorries allowed a maximum half their tanks filled and in worse cases, only 200 yuan worth ( 40 litres) per visit.

Queues of diesel-fuelled taxies and small trucks lined up at petrol stations operated by both majors in downtown Ningbo, a driver surnamed Lai told Reuters, after some outlets told buyers they had run out of diesel.

But trading and marketing officials have said that diesel inventories were comfortable, after refiners raised throughputs and boosted imports since December.

Sinopec's Hong Kong-listed shares have fallen by more than a quarter since late February and dropped by more than 6 percent on Friday as investors feared the oil refiner would incur mounting losses as crude oil prices raced to a series of record highs.

(1$=7.0876 yuan)