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Retailers yesterday said the oil business had turned sluggish, as consumers needed time to take in the government's decision to raise retailing prices of oil products by 3 to 5 percent over the weekend.

 

But consumers were not the only ones reacting to Sunday's oil price hike, as the country's oil producers and traders are also trying to predict how the move will affect their businesses.

 

Industry analysts said the weekend price increase and the government's announcement to impose a windfall profit tax on domestic crude oil sales would benefit the country's biggest refiner Sinopec the most, and leave top offshore oil producer China National Offshore Oil Corp (CNOOC) the most hurt.

 

"We sold little oil today, since the buyers are waiting to see what will happen," Wang Jian, sales manager of Xiamen-based Huahang Petroleum Co Ltd in South China, told China Daily yesterday.

 

Huahang, an oil-trading firm based in East China's Fujian Province, gets most of its oil from PetroChina and Sinopec, the country's top two oil companies. Its monthly oil sales, the bulk of which is diesel, average 5,000 to 6,000 tons. The oil is sold as fuel to ship owners and oil-fired power producers in the south.

 

Wang further predicted it would take about a month for his business to return to normal.

 

"I think the oil product price will still be raised by almost the same margin in the future, as Sunday's rise was far below market's speculations," Wang said.

 

The National Development and Reform Commission (NDRC) on Sunday issued a circular, saying the domestic gasoline ex-factory price would be raised by 300 yuan (US$37) a ton, and for diesel, the incremental margin was 200 yuan (US$25) a ton.

 

Chen Xilin, president of the country's biggest private fuel oil importer, Twinace Petroleum & Chemicals Co Ltd based in Wang's neighboring Guangdong Province, agreed with Wang, but said it would take about a week for consumers to adjust to increased oil prices.

 

In a supplementary package announced by the NDRC along with the price rise, the economic policy planner also said that China had imposed a windfall profit tax on domestic crude oil sales with immediate effect, a move that aims to streamline China's oil business while the world crude oil prices remain high.

 

"Approved by the State Council, China will start collecting a windfall tax from oil producers for sales of domestic crude oil effective from the same date as the price hike," the NDRC said.

 

But further details of the particular tax, to be slapped on the nation's top three oil majors, PetroChina, Sinopec and CNOOC, will be announced separately by the Ministry of Finance, the NDRC added.

 

The windfall tax, a long-awaited measure announced by top government officials, will be used to recoup the heavy losses in the regulated refining industry amid the high crude price scenario, and compensate for the country's economically vulnerable groups such as grain-growers, fishermen and public transport drivers, said market observers.

 

Liu Gu, a senior oil analyst with Shenzhen-based Guotai Jun'an Securities Co Ltd, said that the windfall tax, collected from the three oil conglomerates, would possibly reach tens of billion yuan.

 

Spokesmen of PetroChina, Sinopec and CNOOC yesterday said they were not aware of the possible new windfall tax, and declined to comment further.

 

Liu said Sinopec, which focuses on oil refining, would gain the most from the mixture of oil product price rise and crude oil windfall tax. And CNOOC will be hardest hit of the three companies, as its refining and retailing business are not expected to start operations until 2008, she added.

 

Shares of Hong Kong-listed PetroChina closed unchanged at HK$8.05 (US$1), with the remaining CNOOC and Sinopec falling by 3.15 percent and 1.053 percent respectively on the Hong Kong Stock Exchange.

 

(China Daily March 28, 2006)