SEP 21, 2000

Beijing plans to stockpile oil as price rockets

Caught off-guard as oil nears US$40 a barrel, China wants to be able to intervene in the international market and keep fuel prices stable at home

By FRANCESCO SISCI STRAITS TIMES CHINA BUREAU

BEIJING -- China, caught unprepared by the recent rounds of steep oil price increases, is scrambling to salvage the situation with measures including setting up reserves and intervening in the international oil market, said a senior Chinese official.

Dr Feng Fei, deputy director-general of the Industrial Economics Research Department of the State Council, China's Cabinet, told The Straits Times: ""China lacks a structure to cope with price hikes.

""We must be able to intervene in the international oil market and keep fuel prices stable at home.''

China has increased fuel prices six times so far this year. Petrol prices, for example, have risen by 36 per cent since last year.

Dr Feng said that China would set up an institution to intervene in the oil futures market.

Sources at the State Council said that China could invest ""billions of United States dollars'' in oil futures.

The new institution should also enable domestic oil prices to fluctuate within a 5 per cent range from international prices, he said.

Although China is an oil producer, it has nevertheless been a net importer of oil since 1993 and does not maintain strategic reserves. It has just enough to meet one week's demand.

The country's oil consumption is mainly for energy and transportation.

Some foreign experts are sceptical about plans to intervene in the futures market.

A senior official with a Western oil multinational corporation said: ""The idea to intervene in the oil futures market is very risky and not pursued by every country.

""Why is Europe, which also faces so many problems with price hikes, doing nothing? China could end up losing a lot of money.''

China imports about 1.5 million barrels of oil a day.

With the oil price at almost US$40 (S$68) a barrel, setting up two months' reserves could cost China more than US$3 billion.

Furthermore, any Chinese intervention in the market would be unlikely to have any significant impact because two months' reserves would total 90 million barrels.

This is a drop in the ocean as about 72 million barrels alone are traded each day on the world's oil market.

Dr Feng said that China had expected variations in oil prices due to greater oil consumption in the recovering economies of South-east Asian countries.

But it had not anticipated the increases to be so huge.

Oil prices were around US$12 a barrel last year, but have since soared to US$36.

He said that China was not alone in failing to forecast the dramatic price surge.

""In 1998, we went to the US and economists there told us that oil prices would keep steady for 15 to 20 years.''

http://straitstimes.asia1.com.sg/asia/ea7_0921.html

-- Martin Thompson (mthom1927@aol.com), September 20, 2000

Answers

What an asinine idea--to intervene in world oil markets by trying to manipulate futures. You can tell this is a communist regime all right. They know nothing of business.

-- JackW (jpayne@webtv.net), September 20, 2000.

Best news here is that China has no oil reserves and is operating on only a one week supply. No wonder they haven't been jumping up and down about invading Taiwan or nuking Los Angeles lately.

-- Wayard (wayward@webtv.net), September 20, 2000.