Diesel Shortage Spreads to Beijing

China’s four-week-long diesel shortage continues to spread across the map, moving further north into the Beijing area like a stain. With diesel shortages in neighboring provinces, more and more truckers are heading to Beijing to refuel, leading to shortages and rationing in the city’s suburbs.

Stations located on main roads in suburban areas are rationing diesel supply to 200 yuan per vehicle per time. Sinopec, one of the two biggest of China’s oil companies, declared that the problem was caused by unexpectedly large volume and delivery delays in some single stations, and that rationing was a short-term solution since the shortage problem would soon be resolved.

PetroChina, the other China oil heavy, weighed in with a similar explanation, saying that the tight diesel supply in neighboring provinces was forcing many vehicles to seek refueling in Beijing, which had not hitherto been affected by the problem, leading to an unexpected increase in diesel sales and disorder in diesel delivery. It went on to say that rationing did exist at some of its stations, located mainly on major highways in Beijing suburbs. To ensure continuous diesel supply, these stations had to temporarily control sales and quickly apply to the company for more diesel. 

Sinopec and PetroChina stations in eight urban districts are not rationing diesel, but some stations in suburban areas, such as Tongzhou, Changping and Yanqing Districts, are having to.

PetroChina did not state exactly when the rationing would be cancelled, but said it would not ration diesel supply. The average current supply to stations has increased by 30% over the same period last year, triggering temporary shortages in some stations, but the company said it would solve this problem soon.

Since their outbreak in 2005, oil shortages have become a common part of the country’s economic life. In less than three months from the end of last year there have been two shortages. This particular one originated in Guangdong Province and oozed northwards, infecting Shanghai and the whole Yangtze River Delta area before hitting Beijing.

Price hike expectations are the main reason for the recent oil shortage. Unsurprisingly, they arise each time the international oil price increases. Seizing opportunities brought on by tight oil supplies and rising prices, oil firms and gas stations maintain a large reserve, seeking to make larger profits from rising prices. At the moment, profits from oil products in China are quite low, about 100 yuan per ton. By waiting and holding back supplies, oil dealers may gain profits of 300 yuan to 500 yuan or even higher.

Government management has distorted the oil product market. In fuel short Guangdong, needed oil products are exported because prices in domestic markets are kept lower than in international markets. In 2007, Guangdong imported over 8.2 million tons of oil products, a decrease of 18% year-on-year, and exported 2.1 million tons of oil products, an increase of 47% year-on-year. Meanwhile, during January and February, 2008, Guangdong’s oil product exports rose sharply to 771,000 tons, a 270% increase over the same period last year.