CPC under pressure to raise prices

State-run Chinese Petroleum Corp (中油) may raise wholesale prices if New York's benchmark light sweet crude rises above US$42 a barrel, the Chinese-language Liberty Times reported yesterday.

Smaller rival Formosa Petrochemical Corp (台塑石化) would also raise the prices of diesel, gasoline and other products if Chinese Petroleum decides that increases are necessary, a company official told the Taipei Times yesterday.

Contracts for delivery in June of light sweet crude, also known as West Texas Intermediate crude, finished at US$41.38 per barrel last Friday on the New York Mercantile Exchange, after setting a record high price of US$41.56 during the day.

Chinese Petroleum, Taiwan's largest oil refiner, may raise wholesale gasoline prices by as much as NT$1.5 per liter, the report said, citing company officials.

Liao Tsang-long (廖滄龍), deputy director of Chinese Petroleum's industrial relations division, yesterday downplayed the report, saying that the company had not set a benchmark for future markups.

"We will keep monitoring the whole situation and will not take any action until we cannot bear it," Liao said. He refused to say what would be an unbearable price for crude.

Chinese Petroleum chairman Kuo Chin-tsai (郭進財) said on March 31 at the legislature that the company faces "tremendous" pressure as a result of rising crude prices. But the company will maintain its current rates at least until the end of the month, Kuo said at the time.

Liao yesterday conceded that the company's sales department has been proposing a rise in wholesale oil prices to reflect soaring costs since crude surged over US$38 in March.

"But we basically will stick to chairman Kuo's promise to keep oil prices stable for two months until the end of May, unless the international crude oil price goes out of control before the deadline," Liao said without explaining the elements of the proviso.

Minister of Economic Affairs designate Ho Mei-yueh (何美玥), also a company board member, said earlier this month that wholesale gasoline prices for Chinese Petroleum and Formosa Petrochemical were based on crude costing US$37 per barrel.

A price rise of US$1 per barrel costs Chinese Petroleum an estimated NT$600 million, Liao said. The company has seen the rising price of crude slice NT$5.8 billion off its pre-tax income in the first four months of this year.

Formosa Petrochemical, which generated pre-tax income of NT$9.6 billion in the first quarter, said it would not make any move before its competitor does.

"We will follow Chinese Petroleum in deciding the time and range of our markup," said Matiz Lin (林明憲), a public relations official at the nation's second largest refiner.

Compared to domestic demand-oriented Chinese Petroleum, Formosa Petrochemical's lucrative exports of refined oil products to other Asian countries, which makes up between 30 percent and 40 percent of its revenue, were largely responsible for the company's decent earnings.

"Chinese Petroleum is probably under a great deal of pressure," Lin said. "We gauge that the company could increase the oil prices in this coming week."