The secret of the price of oil in China

The Beijing News
March 27, 2009

“Domestic oil pricing mechanism revealed for the first time,” reads a headline on the front page of The Beijing News.

Peng Sen, the vice-director of the National Development and Reform Commission, which is in charge of domestic oil pricing, stated that the price of refined oil in China is decided based on the international crude oil price, but the government only considers making adjustments when the average rise or drop is more than 4% over a given period of 20 days. Peng also explained that hike in gasoline prices on March 25 was a response to a spike in international crude oil prices that has lasted over 20 days.

Lin Boqiang, director of the energy research center at Xiamen University, was also quoted in the article refuting the idea that the government only responds to upward motion of the international market. Lin said, “The recent international price drop didn’t last very long, so it’s unjustified to accuse the government of only following the ups and not the downs.”

However, Lin’s defense of the NDRC may not be justified, either. Han Wenke, an official in the NDRC’s Energy Research Institute, has spoken to the media about oil pricing in the past. His opinion has changed based on the circumstances, something that Internet users have gleefully pointed out.

In January 2008, when the price of crude oil on the international market was midway on a climb from US$40, Han implied that domestic prices should be higher:

China’s refined oil pricing mechanism should be reformed and further improved. It should be brought in line with the international market in order to take full advantage of the market economy to regulate demand. It is also important to form a fuel efficient and environmental pricing mechanism.

In November, Han Wenke changed his stance, and said that pegging the domestic price of refined oil to the international market was not going to happen any time soon: “China is still a developing country. It is unrealistic to tie everything to the international market.” At that time, the price of crude oil price was declining from its height of US$147.