Oil game under various factors: why is gasoline so expensive in Asia?

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Author: brother Mao, this article is reproduced under the authorization of the official account brother Mao’s vision (id:maogeshijue).

Gasoline price has always been a hot topic in public opinion, especially when gasoline price rises sharply, it is often that various stories fly all over the sky, which strongly stirs up the public’s nerves. Today, let’s talk about the complex game behind gasoline price systematically.

Let’s start with an appetizer before we talk about the oil price.

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The strength of Russia’s financial counterattack

After the outbreak of the Russia Ukraine war, the most commendable thing is the beautiful counterattack launched by Russia in the financial field. This financial counterattack not only made the Russian ruble exchange rate recover its lost ground quickly after halving, but also set a new high.

So why can Russia fight such a beautiful financial counterattack?

The reason summarized by the outside world is that Russian energy is a hard currency in the international market, and there is no need to worry about buyers. Therefore, after Russia insisted that “unfriendly” countries must buy oil and gas in rubles, European and American countries are unable to resist. The ruble achieved the counter attack of exchange rate by binding with Russian energy.

Is that really the reason?

I’m afraid not!

Because I can cite the completely opposite case – after Russia forcibly annexed Crimea in 2014, it was severely sanctioned by European and American countries (but the sanctions were far less severe than after the conflict between Russia and Ukraine). As a result, the Russian ruble exchange rate was also greatly devalued, depreciating by 50% that year, which once caused a serious financial crisis in Russia.

Now the problem comes. The shale oil revolution in 2014 has just begun. The United States is still a net importer of oil, and the development of new energy is insignificant. That is to say, at that time, oil and natural gas was a hard currency compared with today. Why didn’t Russia launch a beautiful financial counterattack in 2014, and why couldn’t Russia forcibly bind the ruble with energy?

There is only one answer. The international environment in 2014 is fundamentally different from that in 2022!

In 2014, Russia was basically isolated from the sanctions imposed by European and American countries. What if oil and gas were hard currency? There are many countries in the world that can sell oil and gas! If Russia tied the ruble to energy at that time, the only result would be to be more isolated by the hardline West – just like Iran.

By 2022, the situation will be fundamentally different.

This difference is that China US relations have undergone fundamental changes. In 2014, the relationship between China and the United States was very good. The mainstream view was “husband wife relationship”, so the Western sanctions against Russia and China were basically watching and playing soy sauce. By 2022, China US relations had deteriorated, so after the outbreak of the Russian Ukrainian war, although China declared neutrality, it also took a strong stance to “maintain normal trade relations with Russia”.

Under the pressure of China, Asian countries rushed forward – Japan, South Korea and India insisted on continuing or even significantly increasing their efforts to purchase Russian energy. China imported more natural gas from Russia in March than in 2021, and India was the most aggressive, importing 25 times more Russian oil in a single month than last year.

Simply put, Asian countries have torn a huge gap in the sanctions imposed by European and American countries on Russia.

Facing such a huge gap, even the United States can do nothing. After weighing the pros and cons, the United States finally joined the team of snapping up Russian energy – after all, we can’t watch others roll the EU wool and do nothing!

These are the fundamental reasons why Russia dares to forcibly bind the ruble and energy to “unfriendly” countries, and that is why Russia dares to use energy weapons to grasp the strength of the EU.

Love to buy or not, my energy is not worried about selling!

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The above is the appetizer of this article. The purpose of this appetizer is to raise an important question——

Why are Asian countries so united in purchasing Russian energy after the Russian Ukrainian war, when the Chinese leaders said that they would “maintain normal trade relations with Russia”?

This involves a famous phenomenon, the Asian premium of Middle East energy.

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Asia Premium

The so-called Asian premium refers to the “asianpremium” of Middle East crude oil. Oil exporting countries in the Middle East adopt different pricing formulas for the same crude oil exported to different regions, resulting in higher crude oil prices paid by oil importing countries in Asia than those in Europe and the United States.

How high is it?

About 5-6 dollars / barrel. In the past, the oil imported from the Middle East by European and American countries was about 50 dollars / barrel, that is to say, the oil imported by Asian countries from the Middle East oil producing countries with the same standard was about 10% higher than that of European and American countries.

We should not underestimate the 10% premium. Take China for example, because it depends on more than 70% of foreign oil and imports more than 500 million tons of oil every year. Even if more than half of the oil is imported from the Middle East, the annual premium paid for Asian oil is as high as several billion dollars.

This is still oil. What is more excessive is the Asian premium of natural gas. At the peak, the natural gas price of Middle East countries to Asia can be more than three times higher than that of European and American countries!

Why is there an Asian premium?

This reason is divided into two aspects, one is political, the other is economic.

Political reasons include that the seven major oil companies, known as the “Seven Sisters” of the west, first started oil exploration and development in the Middle East and monopolized the oil exploitation business in the Middle East for a considerable period of time. Before the oil industry became the economic pillar of the Middle East oil producing countries, the political and economic strength of the Middle East countries was relatively weak, and their oil policies were completely controlled by the Western powers led by the United States.

In addition, several oil producing countries in the Middle East led by Saudi Arabia rely on military assistance from the United States and adopt “preferential” policies for the United States in terms of crude oil export prices – equivalent to paying protection fees. The major European countries (mainly Britain and France) have deep historical origins with the Middle East region, and European countries have a strong voice in international affairs (Asian countries used to have a certain voice in addition to China, and basically have little influence in international affairs). The oil producing countries in the Middle East also have a certain dependence on European countries in international affairs, so it is natural to give European countries a certain “discount” on oil prices.

In addition to political reasons, the more decisive factor is economic reasons.

European and American countries are not very dependent on Middle East oil. Even before the shale oil revolution, the United States had crude oil from South America, Canada and Mexico as the main oil source, and Europe had crude oil from Russia as a stable oil source. The initiative in oil price negotiations is very big.

Asian countries, apart from Russia in the north, do not have any larger oil fields from East Asia to South Asia. Therefore, Japan, South Korea, China and India all rely on more than 70% of their oil, most of which are imported from the Middle East.

However, in the last 20 years, the world, especially Asia, has seen the strongest economic growth and particularly strong demand. Foreign oil imports have increased year by year, and the increased part is mainly imported from the Middle East.

International affairs have little say, and oil imports depend on the Middle East. In this case, it is inevitable to be cut off by the oil producing countries in the Middle East.

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This is the origin of the Asian premium.

What should I do?

The international voice will not be resolved in a moment and a half (of course, if we can get six aircraft carrier fleets, we can put two in the Persian Gulf in the Indian Ocean. At that time, we will be sure that the Middle East oil producers will give us a “preferential” price – equivalent to the Middle East countries helping us sell the maintenance costs of two aircraft carrier fleets). At the economic level, we must first reduce our dependence on oil from the Middle East oil producers.

Therefore, China has been looking for oil all over the world in the last decade or so – importing a large amount of oil from Africa, Venezuela, Iran, Russia and Central Asia. For this reason, China has also made great efforts to build oil pipelines in Central Asia.

In 2017, Russia replaced Saudi Arabia as China’s largest oil importer.

However, there is no way that China’s economy is growing too fast (nearly 30million private cars are added every year), so at present, the oil imported from Middle East countries still accounts for more than 50% of the imports.

As for Japan, South Korea and India, their international influence is far less than that of China. They simply cannot compete for oil well exploitation rights in the world as China does. They are far more dependent on Middle East oil than China.

Therefore, Asian countries can only endure the extortion of oil producing countries in the Middle East.

Knowing the above background, we can see that after the outbreak of the war between Russia and Ukraine, although the European and American countries imposed unprecedented severe sanctions on Russia, as long as China stood up and announced that it would “maintain normal trade relations with Russia”, then Asian countries would rush forward and respond one after another.

Just imagine that if Asian countries follow suit and do not buy Russian oil, the Asian premium of Middle East oil producing countries will certainly rise to the ceiling.

Although the smiling chiefs in the Middle East are harmless to humans and animals, they are all people who eat people and don’t spit out bones!

Under normal circumstances, the oil import price of Asian countries is higher than that of European and American countries, so in the past, the domestic gasoline price of Asian countries, especially developed countries such as Japan and South Korea, was generally higher than that of European countries.

However, after the outbreak of the Russian Ukrainian war, the situation has changed.

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International oil prices soared, and Europe took the top 6

After the outbreak of the Russian Ukrainian war, the sharp rise in international oil prices has led to a sharp rise in oil prices in various countries, but the rise is very different from the landing price.

The highest oil price (the following units are unified as RMB / L) is in Hong Kong, China. The gasoline price on June 6 was 19.71 yuan / L, and Venezuela was the lowest on the same day, with less than 0.15 yuan per liter of gasoline.

On the same day, the gasoline price in Chinese Mainland was 9.67 yuan / liter, that in the United States was 8.85 yuan / liter, and that in the euro zone (taking France as an example) was 15.06 yuan / liter. The average gasoline price in the world is 9.50 yuan / liter.

The gasoline prices of major Asian countries must be listed separately here. Japan is 9.214 yuan / liter, South Korea is 2100 won / liter (about 11 yuan / liter in RMB), and India is 105.41 rupees per liter (about 9 yuan / liter in RMB).

The wide gap in gasoline prices among countries is related to the pricing mechanism for domestic oil in different countries – in short, different countries implement different tax mechanisms for domestic oil.

Generally speaking, countries that mainly import oil should levy relatively high tax rates on the price of domestic oil products (to appropriately curb crude oil consumption and reduce the pressure on foreign exchange reserves), while countries that are not highly dependent on foreign oil should levy low tax rates on oil products.

For example, the EU’s refined oil tax rate has reached 56%, South Korea’s 52% and Japan’s 42%, and China’s current rate is about 33%.

Note: the tax burden of oil price is a relative concept. The above tax burden is calculated according to the current oil price. During the period when China’s gasoline price is about 6 yuan, the tax is about 44% – 48%. When the oil price is more than 8.5 yuan, the tax is about 33%.

Therefore, in fact, the actual tax included proportion of finished oil prices in Europe, Japan and South Korea is much higher than that in China.

The United States was a special country. In the past, when it was a net importer of oil, because it was rich and powerful, the oil producing countries in the Middle East gave concessions in the settlement of oil dollars, and the domestic infrastructure was poor (highways and railways), the domestic product oil tax rate in the United States was about 20%. Later, after the shale oil revolution, the United States became a net exporter of oil, and the domestic product oil tax rate was reduced to 12% to encourage domestic product oil consumption, Stimulate the development of domestic energy industry.

In the past, the price of oil products in the United States was much lower than that in Asian and European countries because of the cheap purchase price of oil and the low tax burden. However, this problem has to be divided into two parts. Low gasoline prices are friendly to people with cars, but developed public transport facilities (subway, high-speed rail and bus) in China and Europe are more friendly to people without cars.

Now the question arises: Why did European and American countries’ domestic oil prices rise far more than Asian countries after the Russia Ukraine war?

After the war between Russia and Ukraine, the EU cut off most of its energy trade with Russia. On the one hand, the EU can only tolerate the exploitation of oil by oil producing countries in the Middle East and other countries; On the other hand, Russia’s natural gas accounts for more than 40% of the EU’s demand. After cutting off most of the natural gas trade with Russia, the EU’s natural gas price directly rose to the ceiling, which indirectly led to a further sharp rise in the price of alternative oil products.

As for the United States, its domestic governance is incompetent.

The United States does not lack low-cost crude oil (both imported and domestic) or natural gas. However, the supply chain crisis caused by the COVID-19 in the United States has not been resolved for a long time. The domestic supply chain in the United States is in a state of intestinal obstruction. A large amount of crude oil and refined oil are deposited in ports, warehouses and refineries. There is a serious lack of sufficient truck drivers to transport these refined oil to terminal gas stations. This is such a broken reason, It will more than double the price of refined oil in the United States in a year.

While the domestic oil products of Asian countries also rose sharply, but the increase was about 50%, far lower than that of European and American countries.

This is because Asian countries insist on buying a large number of low-cost oil from Russia (much cheaper than the oil price in the Middle East), which largely hedges the Asian premium in the Middle East; More importantly, Asian countries also import a large amount of cheap natural gas from Russia. There is no problem that the shortage of natural gas drives the secondary price rise of refined oil; In addition, there is no supply chain crisis in Asian countries. This series of reasons makes the price increase of domestic refined oil in Asian countries far lower than that in Europe and the United States.

The Russian Ukrainian war may have a more far-reaching impact on oil prices in Asia and Europe in the future.

In the past, Europe relied on Russia’s stable oil supply, so it did not rely heavily on oil producing countries in the Middle East, and had a strong say in oil prices in the Middle East. In the future, the relationship between Russia and the European Union will deteriorate, and the situation will reverse – most of Russia’s energy will be mainly supplied to Asia (China may account for the largest proportion). Asian countries have stable Russian oil supply, and the elasticity of demand for oil producing countries in the Middle East will expand, Instead, they may gradually have some bargaining power over oil prices.

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However, Europe, which has lost Russian energy, can only rely on the supply from the Middle East in the future. The elasticity of demand becomes smaller. If it is not done well, it will be given a European premium by the oil producing countries in the Middle East.

It’s really 30 years east and 30 years West.

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Domestic refined oil pricing mechanism

Now we can finally go back and talk about the origin of the domestic refined oil pricing mechanism.

In recent decades, it has been frequently brushed by some stories about oil prices. It seems that everyone has great opinions on China’s oil prices. Similar stories can always trigger widespread dissemination.

That’s what happened a few years ago——

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Oil price segment

Now the story is like this——

92 filling up scares the leg soft;

95. Jiaman is ruined;

98 full third-generation repayment.

Anyway, it is extremely exaggerated and eye-catching.

However, I have made clear the context of the international oil price game and the pricing mechanism of domestic oil prices. I believe you can understand it.

There are two stages of gasoline pricing in China. The watershed of these two stages is 2009. Before 2009, the gasoline price is the bare oil price, that is, it does not include fuel tax and road maintenance fee. It is interesting to compare the international oil price with the domestic gasoline price during this period.

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Comparison between domestic gasoline price and international crude oil price over the years

Extracting two data can also create a paragraph completely opposite to the above

In 2003, the international oil price was $27, and the gasoline price in China was 3.3 yuan;

In 2008, the international oil price was 136 dollars, and the gasoline price in China was 6.9 yuan.

Why did the price of gasoline in China more than double when the international oil price rose more than five times? The answer is very simple. The Chinese government has provided huge subsidies to oil prices, which used to be hundreds of billions a year.

After 2009, the state implemented the reform of oil price mechanism,

First, the subsidy for oil price will be canceled, and second, the fuel tax + road maintenance fee will be included in the oil price.

How to understand?

Why is the subsidy for oil price abolished? Very simply, Chinese families with cars are the wealthiest people in the country. It is unfair to subsidize the rich with the money of the poor by using the national tax to subsidize the oil price.

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I am a car owner, so I agree with the state to abolish subsidies for oil prices. To tell you the truth, if the car free people pay for subsidies for the car owners, I will feel very worried. Recently, the global oil price has soared. According to the information I have found, only India among the developing countries has begun to provide financial subsidies for the price of domestic refined oil. After all, India is the largest democracy in the world.

Why is the fuel tax + road maintenance fee included in the oil price? The reason is very simple. People with high emissions and more cars should pay more road maintenance fees and fuel taxes. People who drive less should pay less taxes. People who don’t drive should not pay taxes.

What about the bus? Local governments give special subsidies.

This reform should be fairer than before, which also reflects the basic characteristics of a socialist country.

Does China have a high proportion of taxes and fees in refined oil products?

If we do not consider the sharp rise in international crude oil caused by the Russian Ukrainian war in the recent year, in the era when the product oil was about 6 yuan, the taxes and fees in the product oil we used accounted for about 44% – 48%.

This proportion is in the lower middle level among countries that mainly import oil.

It is worth mentioning that the proportion of China’s refined oil tax has increased to the current level year by year, and the biggest increase is the gasoline consumption tax. In 2009, the gasoline consumption tax was only 0.2 yuan, but it has been raised to 1.52 yuan in 2018 and has continued to this day, with a 10-year increase of 660%.

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(source: upstream News)

The Ministry of finance is very skillful in raising the gasoline consumption tax. Generally, the tax is raised when the international oil price falls, so for ordinary consumers, there is always a sense that the oil price rises more and falls less.

Consumption tax is a special kind of tax in China, which is mainly levied on specific groups. At present, the fields of levying consumption tax include tobacco and alcohol, jewelry, luxury goods and gasoline, and the meaning behind it is self-evident.

Finally, why is the oil price of state-owned gas stations more expensive than that of private or foreign capital?

The main reason is that the operating cost of state-owned gas stations far exceeds that of private and foreign-funded gas stations. There are two specific reasons.

One is that many state-owned gas stations are distributed in the core of the city, while private gas stations are generally located in the suburbs and even villages and towns. This different geographical location involves great differences in land costs, which directly leads to the fact that the construction cost of state-owned gas stations is often more than ten times or even dozens of times that of private and foreign-funded gas stations.

Simply put, eating in the downtown area of the city is definitely more expensive than eating out in the suburbs.

Secondly, the state-owned gas stations have political tasks, that is, they must set up gas stations in remote rural areas, border lines and so on. These stations must be trading at a loss, but objectively they also raise the overall cost.

On the one hand, setting up gas stations in these inaccessible areas is poverty alleviation, on the other hand, it also greatly promotes the domestic tourism industry, so that we can drive to any area without any worries.

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A border gas station of PetroChina

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Write at the end of the article

As a car owner, I naturally hope that the lower the oil price, the better. This mood is understandable.

However, the international oil price involves a complex political and economic game. From the past trend, after World War II, the human economy has developed rapidly, the number of cars has increased rapidly, and the overall cost of oil exploitation is a slow rising trend – in short, cheap and easy to dig oil has been almost exploited, and human beings must exploit oil deeper underground (or in the sea).

Therefore, in recent years, new energy technologies have begun to rise, and China has made the greatest efforts in this regard. China must vigorously develop the new energy automobile industry to significantly reduce its dependence on imported oil and achieve the goal of overtaking in the automobile industry.

Fortunately, after more than ten years of hard work, the momentum of the rise of China’s new energy automobile industry has been unstoppable since this year. Last year, China ranked third in the world in terms of automobile exports. This year, it is very likely to beat Germany to take the second place. Next year, it is expected to beat Japan to become the first country in the world in terms of automobile exports.

At present, Chinese brands have no rivals for new energy vehicles with less than 500000 yuan. Even Tesla has been losing ground under the impact of Chinese brands.

In the past, China’s acquisition of white appliances and mobile phone industry chain has enabled 1.4 billion Chinese people to achieve a well-off life, and the per capita GDP has exceeded US $10000. In the future, if China takes advantage of the opportunity of new energy vehicles to overtake, it will take advantage of the automobile industry with the most complex industry chain and the largest amount of money involved, which will bring down Japan and Germany. In the future, China’s per capita GDP will undoubtedly reach US $20000.

Therefore, please look forward to my next article “three Masterpieces: the counter attack road of China’s automobile industry” on the road to the rise of China’s automobile industry. This article is reproduced under the authorization of official account brother Mao’s vision (id:maogeshijue).

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