2010-11-10 14:41

China's diesel shortage is likely to last until the end of this year, because some local governments' blackout policies will not be repealed until January and world oil prices are increasing, Economic Information Daily reported Wednesday.

In order to meet Beijing's energy-saving targets for the 11th Five-Year Plan (2006-2010), some local governments are switching off electricity supplies to reduce emissions, the report said.

"Unless local governments repeal power-cutting policies, the diesel shortage will not be eased," said Lin Boqiang, head of the energy and economics research center at Xiamen University. He estimated that the situation will not change before the end of this year.

The electricity rationing measures caused a surging diesel electric power demand, and more than 100,000 tons of extra diesel fuel was needed in a single month, the report said.

C1 Energy Ltd, an independent petroleum market reporter, said that China's diesel supplies have dropped 26 percent in the past five months. Although output is increasing, the market will not be balanced before 2011, CI Energy reported.

Increasing oil price rise expectations have added fuel to the flames, as well. The world oil price was expected to rise after the US Federal Reserve announced an accommodative monetary policy, said Zhong Jian, chief analyst at oilgas.com.cn.

The world oil price climbed for four straight days from Nov 2 to Nov 6, topping $86.80, the highest level of this year, the report said.

Lin from Xiamen University also told the newspaper that the lagging pricing mechanism is another liability in terms of easing the diesel shortage.

"If the price adjustment cycle was shortened to 10 days or a week, the oil price should have increased to restrain the demand," he said, adding that it will at least ease the shortage if not resolve it.