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.

With crude oil prices soaring in the international market, oil fields affiliated with the two oil giants made huge profits. If the costs of oil exploitation and imports were averaged, the cost of refined oil in China would definitely be lower than the current price. Similarly, gas stations made a substantial profit. In Beijing, the profits of gas stations frequently run into the millions.

Some experts argue that the oil companies transfer profits and make false entries during the oil refining stage so that they can get enormous financial subsidies. They can use the high price of imported crude oil as an excuse (concealing the fact they have a large quantity of low-cost self-produced oil) to ask for a higher price. This is all misfeasance.

The oil price in the US is also very high, but their oil refining enterprises are not experiencing huge losses. This is because their profits are determined differently and because domestic refineries produce a comparatively small amount in the US. Why don't domestic refineries calculate the cost of processing on the basis of the output of refined crude oil? Some say that while oil refining is monopolized by these two companies, prices will not be determined by the free market. If these companies were broken down and reorganized, the problem would be settled. The most fundamental problem is that although the two oil giants are listed companies, their operations are still based on official standards.

According to experts, the retail price (plus various accession fees) of every liter of oil in the Chinese market is almost equal to the retail price in the US market (the price is converted according to the current exchange rate). The price of refined oil is going differ between countries according to their own policies and taxation system.

The price of oil in China should be linked to the international price, as it is in China's national interest. Oil is crucial to overall economic growth; more consideration should be given to the economy, rather than the interests of domestic oil companies.

By People's Daily Online