Why is the oil price so expensive? Putin does not carry the pot!

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Author: Rong ping source: official account: Rong Ping (id:rongping898) has been authorized to reprint

When it comes to the impact of the Russian Ukrainian war on ordinary Chinese people, people quickly think that the oil price has become more expensive.

Since this year, the price of domestic refined oil has been raised 11 times. The unit price of No. 92 gasoline has exceeded 9 yuan, while that of No. 95 gasoline has exceeded 10 yuan. This record oil price makes people cry out that they can’t afford to use it. They dare not step on the accelerator again!

Why is the domestic oil price so expensive? This should not only start from the domestic product oil pricing mechanism, but also make clear the reasons for the rise in international oil prices. In addition to the Russian Ukrainian war, it is also related to the deep-seated changes in the international energy game pattern, which is the internal determinant of the continued rise in oil prices.

In my opinion, according to the rules of domestic refined oil pricing mechanism, when the international oil price reaches $130, there is no room for domestic oil price to rise, that is, now the oil price has basically peaked and will not rise again. On the surface, the international oil price is related to the war between Russia and Ukraine. That is, Russia has reduced its energy supply due to Western sanctions. In fact, it is fundamentally caused by inflation caused by Western currency overload and the radical new energy revolution.

How is the domestic refined oil priced?

According to the data of the General Administration of customs, in May this year, China imported about 45.82 million tons of crude oil from overseas, an increase of more than 11.8% year-on-year. Among them, the crude oil imported from Russia increased by 55% year on year. Russia has also replaced Saudi Arabia as China’s first crude oil supplier.

This means that we are also buying discounted oil from Russia, so why are domestic gasoline prices still rising?

The domestic refined oil pricing mechanism has undergone several rounds of reform, and the current rules are basically as follows:

The price of domestic refined oil is conditionally linked with the international oil price. The pricing and price adjustment cycle is 10 working days, that is, the average value of the international oil price in the past 10 working days is referred to.


In january2016, the national development and Reform Commission further improved the product oil pricing mechanism and set the upper and lower limits of regulation. When the international product oil price is higher than 130 US dollars / barrel, the domestic gasoline and diesel retail price is less raised; When the international oil price is lower than USD 40 / barrel, the maximum retail price of domestic gasoline and diesel will not be reduced; When the international oil price is between 40-130 USD / barrel, the domestic product oil price will rise or fall depending on the situation.

That is, the domestic oil price of finished products does not rise and fall with the international oil price indefinitely. It has a sky floor mechanism, with a ceiling of $130 and a floor of $40. Once the international oil price touches the upper or lower limit, the domestic oil price will not be adjusted or less.

In other words, if the international oil price is maintained between $40-130 / barrel, the domestic product oil price will be adjusted according to the above and with reference to the international oil price in the last 10 working days.

However, if the international oil price rises above the “ceiling price” (that is, the international oil price exceeds 130 US dollars / barrel), even if it rises to 150 US dollars / barrel, the domestic product oil price will no longer or reduce to follow the rise of the national oil price.


Similarly, if the international oil price falls to the “floor price” (that is, USD 40 / barrel), the domestic product oil price will not be adjusted according to the domestic oil price. Even if it falls to a negative number in the previous two years, the domestic product oil price will not be adjusted.

After the outbreak of the Russian Ukrainian war, the international oil price reached over 130 US dollars, and now it has dropped back to about 110 US dollars. Although according to the 10 day average price of the international oil price, it is impossible for the domestic oil price to decrease rapidly because the current international oil price fluctuation is still high, according to the rules of domestic product oil pricing, the international oil price is not far from US $130, which is close to the upper limit of the domestic oil price, and the domestic product oil price has basically peaked.

In addition to the fact that the international oil price is the main anchor factor affecting the domestic product oil price, the domestic product oil price is also affected by the crude oil import, petrochemical enterprise production, transportation costs and profits, taxes and other factors.

Many people ask that China imports a large amount of Russian crude oil, and Russia gives us a good discount, which is the lowest cost among China’s crude oil suppliers. Why does the domestic oil price continue to rise to a new high?

It is worth noting that the discounted oil price of short-term imports cannot be immediately reflected in the retail price of domestic refined oil products.

Not to mention that China’s oil price is pegged to the rise and fall of international oil price, the deeper thing is that oil import is a long-term behavior, and the retail price of refined oil is affected by multiple factors such as production, transportation, profits, taxes and fees.


Because oil import is different from the common people buying fuel, rice, oil and salt. If it is cheap, it will buy more, and if it is expensive, it will buy less. As the cornerstone of a country’s stability, oil must be carefully adjusted in terms of import.

In order to ensure the safety and stability of oil supply, China has been signing long-term agreements with oil exporting countries in recent years.

The restriction of the agreement is beneficial to both parties – the exporting countries have long-term “orders” before they dare to scale production, while the importing countries have a stable oil supply source, and the oil price under the long-term agreement is certainly more stable than the short-term price.

Therefore, under the constraints of the agreement, China will not rashly adjust its oil imports. China has always had the spirit of contract. If we buy more discounted oil from Russia and reduce purchases from other channels, it is easy to have the risk of default on the agreements signed through other channels.

Russian oil discount is a short-term behavior. It is obviously not cost-effective to default for such temporary profits, and it will also have an impact on future cooperation.

Therefore, even if Russian oil is sold at a discount, China cannot buy as much as it wants. Moreover, there are price provisions in the long-term energy agreement with Russia.

Therefore, we cannot take it for granted that if Russia’s crude oil is discounted, the price of China’s refined oil will certainly fall.

In addition, the retail price of gasoline consists of crude oil cost, refining cost, transportation cost, sales cost, import cost, government taxes, etc.


In particular, taxes and fees, the consumption tax included in the price of oil products sold in China accounted for 26.81%, of which the value-added tax reached 14.53%, and the rest included corporate income tax and urban construction tax. These taxes account for about 50% of the price, and the remaining 50% is the real cost price of domestic gasoline.

At present, the short-term international oil price has fallen sharply due to some actions of the United States and Saudi Arabia, and it has almost fallen below $100. Under such a background, the domestic oil price should fall soon. The current gasoline price is basically at the top.

The global energy situation and the comprehensive causes of the sharp rise in international oil prices

Before that, the domestic oil price broke 10 yuan per barrel, and the direct reason was that the international crude oil price exceeded 120 dollars per barrel.

Affected by the epidemic, the global energy demand in 2020 is about 4.5% lower than that in 2019, which is the most serious recession after World War II. However, as countries restart tourism, transportation and economic activities in 2022, it is expected that this year’s oil demand will return to the level of 2019.

In addition, the world crude oil supply that has been reduced in production did not respond in time, and the turmoil of the Russian Ukrainian war led to supply imbalance. This is the main reason why the international crude oil price quickly rose from $80 to $120.

That is, this round of rise in international oil prices is the result of a combination of multiple factors, including the war between Russia and Ukraine, sanctions against Russia, OPEC attitude, demand recovery, etc.


First of all, the Russian Ukrainian war did push up the oil price, but before the Russian Ukrainian war, the international oil price was already in the rising channel. This shows that Putin is only one of the promoters of high oil prices, but not the root cause of high oil prices.

The root cause of high oil prices is that western countries use excessive money to rush to buy global commodities, as well as sanctions such as the oil embargo against Russia, and the radical new energy revolution to trigger the gap in traditional energy supply.

Putin used data to prove the problem of the US and Europe issuing money indiscriminately in the past two years at the recent St. Petersburg International Economic Forum. In the two years since the outbreak of the COVID-19, the money supply in the United States has increased by 38%, printing an extra $5.9 trillion. Over the same period, the EU’s money supply also rose sharply, increasing by about 20%, or 2.5 trillion euros. The size of the excess money issued by these two economies can already equal the total GDP of a developed country.

What are so many dollars and euros doing in the global circulation? Purchase goods and services from non western countries, including energy strategic reserve oil.

In terms of the flow of Russian oil exports, in 2021, the volume of Russian crude oil exported to Europe will reach about 2.6 million barrels per day, accounting for 56%, the volume exported to Asia will reach 1.44 million barrels per day, accounting for 32%, and the volume exported to the Americas will reach 210000 barrels per day, accounting for less than 5%.


The United States imports crude oil from Russia every week (thousand barrels / day), and the updated release date is June 2. Source: US Energy Information Agency

Even during the Russia Ukraine war, the United States and Europe imported a large amount of Russian oil and natural gas. Russia exported about 63billion euros of energy products, of which about 71% were exported to European countries. In addition, the amount of energy products imported by the United States to Russia during this period also reached 100000 barrels per day.

Secondly, after the outbreak of the Russian Ukrainian war, OPEC countries’ attitude towards Russia was also very subtle. They did not increase crude oil production under the pressure of the West because the Russian Ukrainian war reduced Russia’s energy supply.

After the outbreak of the Russian Ukrainian war, the crown prince of Saudi Arabia and the leaders of the United Arab Emirates even refused to answer Biden’s phone calls, did not yield to the pressure of the United States, and signed a large oil order with China.


The global oil supply is actually sufficient. At present, the real impact on international oil prices is not Russia, which has been forced to reduce production, but Saudi Arabia, which has stood still and increased production slowly.

Saudi Arabia regards whether to increase production as a weapon to restrict the United States. Recently, the oil price in the United States has also soared, and inflation has reached a new peak, which poses a great threat to the democratic election in November. In addition to repairing relations with Saudi Arabia and releasing Iranian and Venezuelan oil, the Biden administration has also recently introduced a number of measures to suppress oil prices.

Of course, it is now said that Saudi Arabia will reduce its oil supply to China, mainly because Biden will visit Saudi Arabia in mid July, just pretending in advance to take care of Biden’s face! However, even if Saudi Arabia’s supply decreases, we can make up for it by increasing Russian crude oil.

Thirdly, after the outbreak, the demand for oil expanded rapidly due to the recovery of industrial production. It was difficult to recover the oil output reduced by opec+ for a while, resulting in a situation of short supply, which triggered the continuous rise of international oil prices.

Moreover, Chinese and Indian buyers started the “buy buy” mode for Russian crude oil, which effectively made up for the reduction of Russian energy supply in Europe, and Russia’s energy export income also set a record, which shows how strong the energy demand of large countries such as China and India is.

The Asian market now accounts for half of Russia’s total crude oil exports, a significant increase compared with about 1/3 at the beginning of the year. In the four weeks up to June 17, the average daily marine crude oil exported by Russia to China was about 1million barrels, higher than the annual low of 600000 barrels / day in the week up to February 18.


Compared with China, the traditional buyer of Russian crude oil, India’s “new customer” in this year has become a big buyer of Russian marine crude oil exports. In the four weeks up to June 17, the average daily marine crude oil exported by Russia to India has exceeded 600000 barrels, while at the beginning of the year, this figure was only a paltry 25000 barrels, a full 24 times increase.

Finally, from the perspective of interests, traditional energy producers do not want the global new energy revolution to move too fast.

In fact, for oil suppliers, the higher the oil price, the better. The reasonable price of oil price should be about $70, which can maintain the level of global demand for oil at which OPEC continues to benefit.

In fact, opec+ organizations, including Russia and Saudi Arabia, do not expect high oil prices. They prefer to keep oil prices in a rational range of $60~80 for a long time.

Because the history of 50 years since the first oil crisis in 1973 has repeatedly proved that every rise in oil prices will promote the development of alternative energy and promote the end of the oil age ahead of schedule.

However, the Western operation triggered the rise of energy prices.

Before the Russo Ukrainian war, Europe carried out a radical new energy revolution, greatly reducing the use of traditional energy such as oil and coal. All major European countries are pioneers in the field of environmental protection and emission reduction.


Take Germany as an example. In recent years, it has been significantly reducing the proportion of coal and nuclear energy in the energy structure and significantly increasing the proportion of renewable energy. Britain is no less keen on renewable energy. In 2020, renewable energy will account for 43% of electricity generation in the UK, and it is planned to completely eliminate coal-fired power by 2024.

However, renewable energy is not awesome, and the energy supply originally planned to be undertaken by renewable energy is in short supply. While developing renewable energy, these countries have been eliminating and controlling traditional energy such as coal power and nuclear power, which are difficult to recover in a short time.

This leads to the fact that the gap must be filled by natural gas, which further aggravates the scarcity of natural gas resources and leads to the soaring energy prices. With the outbreak of the war between Russia and Ukraine and the European sanctions against Russia, the rise in energy prices is even more out of control.

At the end of the article, the author has something to say

In short, the Russian Ukrainian war triggered changes in the global energy pattern, and Europe’s energy demand was restrained due to artificial sanctions, but this did not lead to the decline in oil prices and the easing of inflation. The US and Europe pushed up global inflation, including energy prices, because of excessive currency issuance.

In the context of the expectation of energy shortage caused by the war, the failure of oil producing countries in the Middle East to cooperate in increasing production, and the large-scale purchase of Russian crude oil by Asian buyers, the global energy demand has simply shifted from the west to the East. In addition, the recovery of demand after the epidemic and the setback of the energy revolution have triggered a rush to buy traditional energy, which have all contributed to the soaring prices of oil and natural gas.

The domestic oil price and the international oil price are market-oriented linkage. From the current price point of view, the international oil price has been in the high range, which also means that the domestic oil price is approaching the upper limit of adjustment. In the short term, as the United States has introduced a series of measures to suppress oil prices and ease inflation, the attitude of Saudi Arabia, the main oil producer, has also changed, and the war between Russia and Ukraine has also entered a normalization and protracted war, which has a downward effect on the high price of oil. If the recent decline in international oil prices can continue for a period of time, it is expected that domestic gasoline prices will soon have room for downward adjustment.

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