The pain of domestic refined oil pricing mechanism

The maximum retail price of gasoline and diesel in the Chinese mainland has been continuously maintained for more than four months since April 7. During this period, international crude oil prices have experienced a roller coaster market, especially since August, when the S&P lowered the US sovereign credit rating. The international oil price plummeted. The price of New York's WTI crude oil fell from around US$115 per barrel in mid-April to around US$82 per barrel on August 8. London’s Brent crude oil price also fell from US$125 to US$104 per barrel.

Why does the international crude oil price plummet and the retail price of refined oil does not slow down? The explanation of relevant departments is: “From the moving average of 22 consecutive working days, the short-term decline in the price at the time has a limited impact on the average price. The current price adjustment refers to three The average price of crude oil is still higher than the price level at the time of domestic refined oil price adjustment on April 7. Domestic refined oil prices temporarily do not have the conditions for downward adjustment.”

According to the above explanation, under the current pricing mechanism, the refined oil price adjustment must satisfy two conditions at the same time: the moving average price of crude oil prices in the three consecutive periods of 22 working days and the international market will change by more than 4%. The problem is that this mechanism was introduced at the end of 2008. After experiencing the test of nearly three years, although there has been significant progress in the transparency of government decision-making and reflecting the market supply and demand conditions, the price of refined oil products has not yet been fully formed. In the context of the mechanism, its own deficiencies will inevitably lead the society to question the "easy ups and downs" and "chasing up and not recover" oil prices.

The deficiencies of the current pricing mechanism can be summed up in several ways:

The first is the inequality of the upward adjustment and the decline in the starting point, which creates the conditions for the retail price of refined oil to “easily rise and fall”. Taking the US$100 per barrel as the benchmark price, if it rises by 4%, it will be in line with the upward adjustment of refined oil products. The demand of oil companies for raising the price of oil will increase; if it is based on US$104 per barrel, it will need to fall by 4%. To US$99.84 per barrel instead of US$100, it will consider lowering refined oil prices. If US$99.84 is used as the benchmark oil price, as long as it rises by 4% (ie, US$103.8336 per barrel), it will meet the price adjustment standard. By comparison, the first time the price of oil was increased by $4, while the downward adjustment was $4.16, while the latter was $0.16 more, and the gap was higher when the benchmark price was higher.

Secondly, with the existing pricing mechanism, each price adjustment is a reflection of the fluctuations in international oil prices in the previous period, rather than reflecting the price of oil at a certain point in time, and it is not a forecast for future oil prices. It has a certain “time lag”. . Because international oil prices have jumped up and down like a roller coaster in a short period of time in recent years, it is not ruled out that within 22 working days, one day or even a period of time, international oil prices fell sharply, but in another period, it rebounded sharply, resulting in 22 The moving average price of the weekday does not reach the adjustment standard.

Third, the existing pricing mechanism refers to the rate of change of crude oil prices in Brent, Dubai and Xinta, and excludes WTI prices in New York. Since we mainly import crude oil from the Middle East, Africa and Europe, this choice can be understood. Only this year, the turmoil in the Middle East and the Libyan War caused short-term shortages in the oil markets of Europe and North Africa. The prices of oil in the three places have risen. These geopolitical factors have had a minor impact on the North American market. After the US financial crisis, the United States has invested in WTI crude oil. The strengthening of supervision resulted in WTI crude oil prices being relatively low. It is difficult for our reference price to truly reflect the changes in international oil prices in a timely manner.

Furthermore, in the current actual composition of oil prices, various taxes and fees collected by the government and the cost of expensive logistics transportation are included, resulting in an excessive proportion of “non-cost” factors in the pricing mechanism, which also makes oil prices “easily up drop".

The imperfect market system and the lack of competition are the sources of the “easy to rise and fall” system of oil prices. The retail oil market in the Mainland has not yet fully liberalized, and a few enterprises are in an absolute monopoly position. Although Shell, BP, Total and other overseas companies have entered China's gasoline and diesel retail market, they still need to cooperate with local companies in the Mainland and cannot achieve free pricing and free competition in gasoline and diesel. Private enterprises have a long way to go because of the gap between capital and oil sources and the state-owned oil giants. The dominant and high-quality retail channels are controlled, but in terms of oil price reduction, the state-owned oil giant gas stations are not as responsive to the market as foreign and private gas stations. According to the current pricing mechanism, the country has set a maximum retail price for each region, and regional gas stations can be further reduced by 8%. In this wave of price cuts, private gas stations are extremely sensitive to the market. After the wholesale price was lowered, they rushed down the retail price to attract consumers and seize market space. Many of the state-owned oil giant's gas stations are acting according to the directives of regional oil companies. They are not free to cut their prices. As a result, there are strange phenomena that “private service stations have lowered their prices and state-owned gas stations have not moved.”

In Hong Kong SAR of China, besides Sinopec, there are also well-known international companies such as Caltex and Shell. As a result of market competition, Hong Kong has adjusted oil prices three times in less than three months. Including Sinopec's gas station, this situation had people have to produce "Orange raw Huainan is orange, was born in Huaibei is a pimple" sigh.

However, even in the context of the monopoly of the refined oil market that has not been completely eliminated, it is entirely feasible to make partial adjustments and improvements to the current pricing mechanism.

Given that the current pricing mechanism has a long price adjustment cycle and the rate of change of 4% is somewhat high, these two shortcomings can be considered as reducing the cycle time and changing the rate of change. For example, adjusting to 10 days, 2%, or 5 Day, 1%, until the last day of an adjustment? In addition, hope that the New York crude oil price will be included in the reference price adjustment, timely, accurate and complete reflection of the comprehensive level of international oil prices.

Not long ago, the ex-factory price of aviation kerosene was liberalized and negotiated between supply and demand sides. This has shortened the cycle of aviation kerosene price changes and has taken a big step toward marketization. This is a useful attempt to reform the market price of refined oil products, or it indicates that the pricing power of refined oil products will gradually be decentralized. The author believes that since it has been determined that marketization is the ultimate goal of the refined oil pricing mechanism reform, oil prices will ultimately be determined by the companies themselves. It would be better to simply try to decentralize refined oil pricing right now as a transitional arrangement. Doing so means that the transition from the original price adjustment “approval system” to the “record filing system” can turn the current pricing mechanism into a mechanism of automatic adjustment under the guidance of the government.

Needless to say, the ultimate solution to the oil price reform is to completely break the monopoly and introduce a competition mechanism so that more SOEs, private enterprises, and even foreign companies can enter the refined oil retail market. This requires the integration of the reform of the monopoly system, the fiscal and taxation system, and so on, so that the monopoly enterprises will become the main players in the market economy. At the same time, in accordance with the principles of price coordination with economic development and income levels, lowering the extra-cost tax burden and reducing non-cost factors in oil prices will make oil prices truly in line with international standards and fundamentally lift consumers' doubts about oil prices.