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The country or introduce more peripheral policies to maintain the stability of domestic refined oil prices
The macroeconomic data released the day before yesterday revealed that domestic CPI surged by as high as 8% in the first quarter of 2008. Fueled by rising inflation expectations, the government may implement further measures to stabilize refined oil prices amid growing concerns about economic pressures.
Oil prices have shown signs of overheating. Since 2008, international oil prices have climbed sharply, with a rise of approximately 18% so far this year. On May 16th, light crude oil for May delivery on the New York Mercantile Exchange closed at $114.93 per barrel, while Brent crude oil futures for the same month settled at $112.60 on the London International Petroleum Exchange.
In response, Jing Jingmei from the National Information Center’s Economic Forecasting Department told reporters that they had previously projected an average international oil price of around $75 per barrel for this year. However, current market conditions suggest actual prices could surpass that level. From a fundamental perspective, OPEC's latest report estimates global crude oil demand at 87 million barrels per day. Additionally, recent customs data shows a sharp increase in China’s crude oil and gasoline imports, reflecting strong consumer confidence. Meanwhile, oil production has not kept pace. Combined with the ongoing depreciation of the U.S. dollar, some investors are shifting their dollars into physical assets to hedge against currency losses. Nevertheless, Jing Jingmei warned that there are still significant bubbles in the oil market.
To ease the pressure of high oil prices on domestic inflation, the government is accelerating preparations for potential oil shortages. Earlier, the Ministry of Finance announced that PetroChina and Sinopec would be allowed to import 3.5 million tons of gasoline and diesel in the second quarter without paying value-added tax upfront.
According to Jing Meimei’s analysis, the CPI data released the day before yesterday showed that residential prices rose by 6.6% in the first quarter, contributing 1 percentage point to the overall price level—far higher than the 3% to 4% increases seen in previous months. "Residential prices include building materials, rental rates, and utility costs," she explained. This indicates that the impact of refined oil prices on inflation is becoming more pronounced. As a result, the government is unlikely to raise retail oil prices in the short term. Instead, it will rely on external policies to alleviate the burden on both consumers and producers. With the introduction of tax-free oil imports and possible crude oil imports, the country may delay domestic price hikes, leading to a cooling of broader price adjustments. This move could help reduce wholesale-retail price inversions.
In the face of persistent high oil prices, how are countries and companies responding? Sun Lijian, deputy dean of Fudan University’s School of Economics, argues that China must accelerate the establishment of strategic petroleum reserves to ensure energy security. This includes developing relevant laws, setting up management agencies, determining the sources of reserves, funding mechanisms, and locations for new reserve bases, all tailored to China’s specific needs.
Internationally, chemical giants like BASF and LANXESS have stated that in the long run, simply raising prices won’t solve the issue. High oil prices will push the chemical industry to invest more in alternative and renewable energy sources, while also driving industry consolidation and innovation.