China has said it will be ready for full oil price deregulation by 2004, exposing consumers to fluctuations on the global markets.

Beijing commited itself to abolishing quotas on oil imports and freeing the retail market to foreign competition when it joined the World Trade Organisation (WTO) last December.

"We believe prices will eventually be dictated by the market. That's the final objective," Liu Zhenqiu, director of the energy pricing department of the State Development Planning Commission said.

"By 2004 we will be in a position to liberalise diesel and petrol prices because import quotas will be abolished. The retail market will be opened."

China has already liberalised domestic prices to some degree, after linking them to the oil markets in Singapore, Rotterdam and New York.

State-owned PetroChina and Sinopec both have exclusive rights to build more petrol stations before deregulation brings foreign competition.

"From our point of view, we want more competition... the two oil giants want to maintain the status quo," Mr Liu told an oil conference in Shanghai.

Some oil traders associated with the state companies opposed deregulation because it would cut their premiums over government-fixed prices, he said.

BP, ExxonMobil and Shell are already in talks with Chinese oil traders to set up petrol station joint ventures.