CHINA urged local governments to set up an early warning system to ensure sufficient oil supplies at filling stations, which face shortages across the nation.

The Ministry of Commerce ordered local authorities to monitor oil supplies and work out measures to cope with emergency shortages, Xinhua news agency said on Saturday. The report didn't elaborate on requirements for the warning system.

Demand for crude oil in China has exceeded output as some refineries cut production because of soaring costs and government-capped fuel prices. The nation's crude oil imports also fell to the lowest in eight months in October as prices climbed to records.

"China's fuel shortage will continue unless the government improves its pricing mechanism and raises domestic fuel prices," said Wu Jun, a Shanghai-based analyst with China International Futures (Shanghai) Co in a telephone interview yesterday.

"Refiners lack incentives to produce more after crude oil prices rose to a record. Domestic fuel prices are lower than international prices" because the government determines prices, Wu said.

Premier Wen Jiabao last week said he would ask refiners to expand capacity to turn crude oil into fuels to run cars and factories. Some of the nation's refineries aren't running at their maximum operating rates, Wen said last Wednesday in Singapore, where he attended the East Asia Summit.

The Ministry of Commerce in a notice called on China National Petroleum Corp and China Petrochemical Corp, also known as Sinopec, the nation's two largest oil producers, to go all out to ensure the fuel supplies.

The fuel shortages have been eased to some extent after the government raised prices early this month, but many regions still face tight diesel supply, according to the ministry notice.

China raised the prices of gasoline, diesel and aviation kerosene by 500 yuan (US$67.60) per ton, almost a 10-percent rise, from November 1.

"The increase of fuel prices is far from sufficient to cover the cost of rising crude oil," Wu of China International said. "Some refiners may take advantage of the fuel shortage to press the government for a fundamental change of its pricing mechanism."