Chinese Gas Price Hike Sends Gushan Soaring

Chinese fuel companies are breaking out on news that the country’s government will raise fuel prices at midnight tonight.

PetroChina (PTR), the country’s largest oil producer, is up 4.8% in morning trading. And China Petroleum and Chemical (Sinopec) (SNP) rose 7.7% so far, while CNOOC (CEO) investors don’t seem to know what to make of the news. CEO shares fell at open, gained, then fell again, sharply, and finally craw upward once more, only to see momentum trail off into losses by 11 a.m.

Along with the big wigs, or perhaps, despite them, smaller refiners and producers are also seeing movement, among them a biodiesel producer called Gushan Environmental Energy (GU), which rose 10.5% this morning.

China has come under fire recently for its heavily subsidized diesel and gasoline prices. The U.S. and UK have complained that the country’s artificially low prices encourage consumers to be wasteful with the gasoline and other fuel they use. And China’s oil refineries have suffered massive losses as they buy oil at market price and must sell the gasoline they produce at the country’s government-dictated price.

Starting at midnight last night, which was 11 a.m. Eastern Standard Time if I’m reading the time zone map correctly, diesel and gasoline prices will rise 1,000 yuan ($145.39) per metric ton.

I have no idea why the Chinese insist on measuring their gas and diesel by weight instead of volume, like the rest of the world, but I think that translates to an increase of about 41 cents (or 2.83 yuan) per gallon, assuming the figure I found, 6.25 pounds per gallon of gasoline, is correct. That’s a 17% to 18% increase overnight.

The increase should help oil refineries recoup some of their losses in past months and may even slow down consumption for the world’s second-largest oil buyer.

Look out for more gains in Gushan Energy. It’s biodiesel can be used in a diesel engine without any modifications. And if the company can ramp up production, which it’s been doing quite nicely for the last few years, it could be one of the solutions to China’s fuel shortage problems.

Disclosure: None

Comments

[haydete:]

Measured by weight because that is how refiners blend mixtures and additives; it also avoids density issues due to varying temperatures.

2008 Jun 20 07:25 AM