The 1999 price and volume talks were unusually protracted and China withheld supply for some weeks in February, leaving a cloud of uncertainty over the future of the exports, covered by a government-to-government agreement. Analysts and industry sources said China's position would be shaped by a mix of political considerations, such as trade negotiations, and the country's drive to a market-orientated economy. The exports bring in important foreign exchange and support a relationship with its biggest trade partner and biggest international creditor.

Japan is expected to support a renewal because Chinese crude imports help with along-term policy to diversify crude sources away from the Middle East, which currently represent 86 percent of imports. "I think China would be more prudent. A term contract could still be there but could be much more flexible given the past few years' experience," said Kang Wu, an analyst with East-West Center, a Hawaii-based research group.

Daqing producer China National Petroleum Corp has complained that it is locked into an agreement that is not as lucrative as selling the crude domestically, industry sources said. The agreement was set up when the company was heavily directed by the government. But now it is operating on much more commercial lines.

Daqing is China's biggest crude field, producing a third of China's annual 160 million tonnes of crude. The current agreement covers minimum sales to Japan of five million tonnes per year -- a fraction of total Daqing production. Wu said he would expect future Daqing exports to be commercially led, like most term contracts in the world's75-million-barrels-per-day oil market.

"The term contract could be on annual basis instead of five years," Wu said.

Japan and South Korea would remain key sales targets because they are close by the Daqing field in northern China. The main domestic market is in the south.

"But the top priority is economics," said Yang Qing, an oil analyst with Beijing-based Energy Research Institute (ERI). "If the price is better selling into Sinopec Nanjing than to Japan, then Nanjing gets the deal," said Yang, referring to one of Sinopec's east-coast refineries.

China's southern refineries have been encouraged to import crude since the early 1990s because it is cheaper, but Daqing remains in demand because of its medium sweet specifications. Wu said the sharp rise in international oil prices must have made CNPC more interested in retaining the agreement.

When it temporarily halted exports in February, prices were close to production cost, but now they offer an ample profit margin. "It could be an easier decisionon the part of CNPC when both domestic and international prices are rising," Wu said. China's internal debate over renewal of the contract may set the commercial considerations of the recently liberalised CNPC against the political goals of the government.

"It's a case of who's voice is louder and who is going to be heard," a trader with one Japanese source said. "China could be counted on to provide a stable source of supply for Japan... The power utility industry would be sensitive about losing such a source," he said.