May 21, 2008 / 11:20 AM / 12 years ago

China hit by diesel shortages as crude soars

BEIJING, May 21 (Reuters) - Petrol stations in at least five Chinese provinces are limiting sales of diesel, as oil firms divert supply from the price-capped retail sector to avoid losses in the face of soaring crude prices.

A resurfacing of the sort of diesel shortage that had caused widespread rationing last autumn will spook the government, keen to avoid a return to lengthy petrol station queues ahead of the Olympic games in August.

It also comes despite a jump in China’s diesel imports since November that has tightened global supplies and pushed the diesel crack spread in Asia to a record high.

Oil firms’ are suffering increasingly severe refining losses as crude prices CLc1 climbed by more than a third this year to above $130 a barrel, while Beijing has kept pump prices frozen since November to battle near 12-year-high inflation.

Lorry drivers in the port city of Ningbo, eastern Zhejiang province, had to queue from dawn for nearly 9 hours to get their vehicles refilled, while many gas stations in the city put out signs of “no diesel” by the early afternoon, drivers said.

At least three stations operated by Sinopec Corp (0386.HK) in downtown Shijiazhang, capital of Hebei province near Beijing, have not received any diesel supplies for more than a week.

“We have no idea when the next diesel tanker truck will arrive,” one staff worker said.

State refiners have to accept government-mandated retail fuel prices, but can trim supply to limit losses.

Instead of rationing in the usual way by limiting sales per truck per visit, companies have now shifted to a “first come first served” strategy that see gas stations run out of fuel before the day ends.

At least several of Sinopec’s gas stations in central China’s Zhengzhou city sold out of diesel by 4:00 pm on Wednesday.

“Our daily quota was not enough to last for the whole day due to limited supplies,” one staff told Reuters by telephone.

“We do not place a ration on every truck, anyone who comes first will be first served, and we do not want to have arguments with drivers who often get emotional if being rationed.”

Beijing sets ex-refinery and retail prices for gasoline and diesel and enforces these rigidly through its web of local pricing agencies.

But it leaves wholesale prices — prices Sinopec and PetroChina (0857.HK) quote to bulk consumers like factories and bus companies as well as independent dealers — largely untouched, handing the oil duopoly massive market power.

Wholesale diesel prices were last quoted at a new record of over 7,200 yuan ($1,034) per tonne in Guangdong province, 11 percent over levels two months ago and about 21 percent above the state-set retail ceiling.

“Wholesale prices keep rising. We don’t really have a choice, as the difference between domestic and international prices is getting ever wider,” said a Sinopec fuel marketing official.

Little rationing was reported for gasoline, which has ample supplies thanks in part to increased imports in the past few months that in April almost flipped China into a net petrol buyer for the first time on record. ($=6.96 yuan) (Editing by Michael Urquhart) (aizhu.chen@thomsonreuters.com; Reuters Messaging: aizhu.chen.reuters.com@reuters.net; +8610 6627 1211)

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