China's implied oil demand in February rose 6.2 per cent, picking up the pace from a sluggish January as state firms boosted imports to ensure plentiful domestic supplies ahead of the Olympics, data shows.
The growth was higher than January's 3.3 per cent rise and last year's overall 3.5 per cent rate, as political pressure mounts on state-controlled Sinopec Corp and PetroChina to keep their retail outlets well stocked, despite losing money by refining imported crude at above $US100 a barrel.
"The government's policy since the last quarter of 2007 has been playing a big role to ensure supply. Refiners were forced to slash exports and raise imports," said Yan Kefeng of Cambridge Energy Research Associates.
For a good part of last summer refiners firms scaled back production in order to salvage their bottom lines, leading to weeks of widespread diesel rationing in the autumn.
But they finally bowed to government pressure after repeated official mandates, including calls by Chinese premier Wen Jiabao to maximise output and plug shortages, plus a surprise 10 per cent hike in retail prices in November.
In February, China, the world's third-largest crude importer, raised crude purchases by 18.1 per cent over a year earlier to match a daily record made in April 2007 at 3.6 million barrels a day, official customs data confirmed earlier on Monday.
Net imports of six major refined products - diesel, gasoline, kerosene, fuel oil, fuel oil and LPG - gained a quarter on year, Reuters calculation showed.
For the first two months, implied demand - domestic refinery output plus net fuel imports but excluding inventory changes - rose 4.7 per cent at 7.2 million barrels per day, according to Reuters calculations based on official data.
CERA's Yan said Beijing faced a policy dilemma - in the short term in needs to tame inflation which is near 12-year highs; in the long-term it hopes to curb energy demand by increasing resource prices to nearer global levels.
For the time being, analysts expect Beijing to tread a middle ground, instituting between small fuel price rises while still giving out fat government grants like last week's $1.7 billion handout to Sinopec Corp, meant to compensate the top Asian refiner's losses due to record global oil prices.
"Will there will be another fuel shortage? Will government be forced to raise prices like in November? I really don't know the answers," Yan said.
Until last week, Sinopec and PetroChina were rationing diesel in parts of the country while cutting supplies to independent dealers, although overall fuel inventories were comfortable, thanks to a few months of bumper diesel imports.
February diesel imports surged nearly ten-fold over a year earlier to about 330,000 tonnes, though easing from levels seen in previous two months, after Beijing offered a tax break.
Meanwhile refiners slashed gasoline exports by 81 per cent in February and in the January-February period, to feed some half a million new cars that hit the roads every month.
Refiners, however, also raised sharply February sales of naphtha - a feedstock for petrochemicals and gasoline - to the more lucrative export market, extending a trend that started in late 2007, customs data showed, as they stepped up efforts to cover some of their huge refining loss at home.
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