Oil Prices Shake up Markets and Policy    

High oil prices are undoubtedly alarming leaders of businesses and governments worldwide. Political organizations place the pressure from high oil prices on the negotiating table. Economists call for suppressing growth of oil-related prices in order to prevent severe damage to the economy, while the people who focus on sustainability concentrate on developing new energy alternatives. Chemical firms are busy passing the cost on downstream or trying to find alternative feedstock or other business.
    In earlier stages the high oil prices only put the direct users in a tight spot. This year's price increases, however, rapidly entangle more and more sectors, no longer limited to industry and transport.
    The unexpectedly high oil prices of this year will produce far-reaching impacts on the petroleum and chemical sectors and even the whole economy in China as in most of the world, as seen in the article, Today's High Oil Prices and the Dawn of the "Post-Oil Era," on pages 11-13 of this issue.
    Similar to other countries, China is closely monitoring the impact of the high oil prices on all its economic segments. According to the data of the National Bureau of Statistics, China's industrial enterprises with an annual sale revenue over RMB5 million in 2007 reported total profits of RMB1 094 billion in the first five months of this year, representing a 20.9% growth year-on-year, while the growth in the same period of 2007 was 42.1%. Following the surging oil price, the prices of other related energy and raw materials moved up. Some upstream sectors, such as metals mining, coal mining and crude oil/natural gas retrieval sectors benefited from the high prices and are enjoying faster profit growth than last year. In sharp contrast, power generating works, refineries and chemical fibers firms suffered falling profits, even losses. Supported by the boosted demand, the papermaking, drug manufacturing and food processing sectors achieved faster profit growth in the first five months.  
    While the domestic refineries are glad for the new oil products pricing policy that the National Development and Reform Commission announced on June 20th, a rumor is going round that the government will discontinue subsidizing refineries. If it becomes true, along with the surging oil prices, Sinopec Corporation, China's largest refining firm, will face a huge difficulty this year unless the government increases the prices of gasoline and diesel once again this year.  
   However, Sinopec Corp. neither worries about the possible elimination of subsidies nor expects to sell gasoline at a higher price. The company announced it will reduce ethylene production in order to guarantee the supply of gasoline and diesel. That may be a financial sacrifice made in order to shoulder social responsibility.

Zhong Weike
July 18th, 2008