With international oil prices the subject of intense scrutiny and debate, the price mechanism for oil in China has also been targeted. Many people, noting that the domestic price of oil went up with the price of international crude oil, are wondering when the price of refined oil will be lowered now that the international price has fallen.

This seems logical. Consumers of oil products are expecting news of cheaper refined oil products. However, a department leader from the National Development and Reform Commission has said explicitly that there is little chance the price of refined oil products will be lowered. There are no plans to reduce the oil price because the current domestic oil price is not tied to the international market.

The growth rate of the price of oil in China is lower than the international price. International prices climbed by 50 percent, while the domestic price only rose by 10 percent. If the price of oil in China was linked to the international market, then prices would have risen even higher.

At what level is the domestic oil price now? Does it have enough space to grow? How can the price of oil in China be linked to the international market? What determines the domestic oil price?

A comparison of domestic and international oil prices is pointless, despite the incredible differences in the price growth rates.

Chinese petroleum resources, from reconnaissance, exploitation and processing to retail (gas station), are monopolized by two oil giants (China National Offshore Oil Corporation is mainly responsible for the reconnaissance and development of offshore oil fields, which accounts for a small share of the total oil market). Last year, China National Petroleum Corporation and China Petroleum & Chemical Corporation turned a profit of over 130 billion yuan and 40 billion yuan respectively. However, these profitable enterprises were also subsidized by 10 billion yuan as refineries experienced the greatest losses.

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