INCREASING demand for oil by China has been the major driver of the commodity's price hikes on the international market, which has been compounded by low levels of oil production by Oil Producing and Exporting Countries (OPEC), the Energy Regulation Board (ERB) has said.

ERB executive director Sylvester Hibajene said in Lusaka recently that demand for oil in China has been soaring due to that country's economic boom, and the trend is expected to continue for a long time.

China, which is the world's seventh largest producer of oil, has doubled its purchase of automobiles in the past four years resulting in the explosion of demand for gasoline in the country.

"Demand for oil in China will continue to increase and as a result China is itself making investments in Libya and Algeria. Prices could be pushed further up if India also decides to join the fray of increased oil demand, " Mr Hibajene said.

"OPEC has kept a low output which has not changed for the last two years. Appeals are being made that they reconsider their position, but so far, there has been no movement on their part.

"Instability in Iraq has added to the nervousness of the market. Shipping has been affected. Generally, whenever there is instability in the Middle East, the price of oil is affected because that region accounts for 70 per cent of the world's oil production," Mr Hibajene said.

About 55 per cent of the world's production of crude oil is controlled through OPEC.

Mr Hibajene said there was no doubt that the current prices were hurting the world economy and hoped that OPEC would respond positively.

Petrol prices in the Middle East moved from US$39.68 per barrel in March to $39.82 per barrel in April, while the Singapore market prices for petrol slid from $43.17 per barrel to $42.82 per barrel during the same period.

Diesel prices in the Middle East increased from $31.75 per barrel in March to $34.00 per barrel in April. Singapore's pricing notched even higher to $36.00 per barrel in April from $34.64 per barrel in March.

Meanwhile, ERB will soon introduce a new pricing system; the Import Parity Model (IPM), which it says will be more transparent and easy to monitor.

Mr Hibajene said that the proposed IPM would base its pricing mechanism on how much it would cost to buy a finished product (petroleum) on the world market, including the cost of transporting it to the Zambian market.

Mr Hibajene said the prices would be arrived at using the average of prices from the Arabian Gulf and Singapore, the main sources of crude oil.

"The proposed model is similar to the Basic Fuel Price Model (BFPM) currently in use in South Africa and has numerous advantages," he said.

Mr Hibajene said the IPM would reflect the quality of products sold in Zambia, with its pricing being in line with international market prices. He said this would also allow for limited hedging opportunities.