On April 7th, China's National Development and Reform Commission (NDRC) announced an adjustment to domestic fuel prices. Effective from midnight that day, the prices for gasoline and diesel (standard products) were set to increase by 800 yuan and 770 yuan per ton, respectively. Following regulatory intervention, the actual increases implemented were 420 yuan and 400 yuan per ton. This marks the second time the government has intervened to stabilize fuel prices since a similar measure was taken on March 23rd.
The fluctuation of oil prices is a matter of public concern. How are China's domestic refined oil product prices determined? Under what circumstances does the government implement regulatory controls? What further measures might be taken if international crude oil prices rise sharply in the future?
China's domestic refined oil pricing mechanism is currently based on the "Petroleum Price Management Measures" issued by the NDRC in 2016. As a major oil importer with over 70% of its crude oil sourced from abroad, the mechanism stipulates that gasoline and diesel prices are adjusted every 10 working days based on changes in international crude oil prices.
An official from the NDRC outlined three key aspects of this mechanism. First, domestic prices are pegged to a "basket" of international crude oils, meaning adjustments are influenced by the average price of multiple crude benchmarks, not just one. Second, the adjustment amount is determined by comparing the average price of this basket over the preceding 10 working days against the average from the previous adjustment period; it is not based on price changes at isolated points in time. Third, the mechanism includes "interval control," where price regulation measures are activated under specific conditions.
In recent years, domestic fuel prices have fluctuated according to this mechanism. For instance, in 2023, prices experienced "10 increases, 12 decreases, and 3 periods of no change." The figures were "9 increases, 9 decreases, 7 no-changes" in 2024, and "7 increases, 12 decreases, 6 no-changes" in 2025. Cumulatively over these three years, prices saw "26 increases, 33 decreases, and 16 periods of no adjustment."
Recent significant volatility in international crude oil markets, particularly record-high prices for Middle Eastern crude, has directly increased China's import and fuel costs, leading to a general upward trend in domestic refined oil prices.
Temporary price controls are implemented to mitigate the impact of abnormal international price surges. According to the existing mechanism, regulatory measures are triggered when the average price of the international crude basket exceeds $130 per barrel or falls below $40 per barrel over the 10-working-day review period. Although the current basket price has not breached the $130 "ceiling," two recent temporary interventions were enacted based on a specific clause in the Measures. This clause allows for price adjustments to be suspended, delayed, or have their magnitude reduced when special circumstances arise, such as significant increases in the general domestic price level, major emergencies, or abnormal fluctuations in international oil prices, subject to State Council approval.
Experts state that these temporary controls, while maintaining the overall pricing framework, balance the interests of consumers and producers. They help cushion the shock from unusual international price hikes, alleviate the burden on end-users, and support stable economic operation and social livelihoods.
The price adjustments announced by the NDRC refer to "standard products" priced per ton, specifically 92-octane gasoline and 0-grade diesel. For example, during the March 23rd intervention, the intended increases were 2,205 yuan and 2,120 yuan per ton for gasoline and diesel, respectively. After control measures, the actual increases were 1,160 yuan and 1,115 yuan. Converted to a per-liter basis, this meant increases of approximately 0.87 yuan for 92-octane gasoline and 0.95 yuan for 0-grade diesel, representing a reduction of about 0.85 yuan per liter compared to the unregulated scenario. The April 7th intervention resulted in 92-octane gasoline increasing by about 0.31 yuan less per liter and diesel by about 0.32 yuan less per liter.
Should the average price of the international crude basket rise significantly above $130 per barrel – a level corresponding to a domestic retail price for 92-octane gasoline slightly above 10 yuan per liter – it would trigger the upper price control limit. In such a scenario, the maximum retail prices for gasoline and diesel would either not be increased or would see a reduced increase for the portion exceeding the ceiling. To ensure stable supply, the government might also implement supportive fiscal and tax policies. A precedent was set in 2022 following the Russia-Ukraine conflict, which caused a sharp spike in international prices. At that time, when prices exceeded $130, domestic fuel prices were not raised for a short period (up to two months), and refineries received temporary subsidies.
The NDRC has stated it will guide major state-owned oil producers and sellers to ensure stable production, distribution, and market supply, while strictly adhering to national pricing policies. Local authorities are instructed to enhance market supervision, strictly investigate violations of pricing policies, and maintain normal market order. Consumers can report any pricing irregularities through the 12315 platform.
The impact of rising oil prices is multifaceted. As the lifeblood of modern industry, petroleum permeates various aspects of daily life, from gasoline at the pump to synthetic materials in consumer goods. Experts explain that past oil crises, often triggered by geopolitical conflicts, typically followed a chain reaction: supply disruptions or anticipatory shocks lead to sharp price increases, financial market volatility, rising inflation expectations, and ultimately pressure on economic growth.
However, in the current context of global energy transition, the transmission path of high oil costs has evolved. The development of digital economies and globalized supply chains has accelerated the speed of price signal transmission. Conversely, high prices can also accelerate the shift towards alternative energy sources, making the economic structure more resilient and potentially mitigating the overall economic impact.
The effects extend beyond direct fuel costs, impacting the entire supply chain and creating ripple effects. The impact on China's Consumer Price Index (CPI) and Producer Price Index (PPI) is analyzed through several channels. For PPI, the impact is most direct: 1) It directly raises prices in oil extraction and processing industries. 2) It transmits vertically along the industrial chain, from basic chemicals to intermediate and final industrial goods, with a diminishing effect at each stage. 3) Through energy substitution, it can push up prices for coal, affecting energy-intensive sectors like power, steel, and building materials. 4) It systemically increases logistics and transportation costs, which has a broad inflationary effect as nearly all industrial goods require transport.
The transmission to CPI is longer and more complex: 1) Direct linkage to retail fuel prices raises costs for transportation services like taxis, ride-hailing, logistics, and airfare. 2) Some upstream PPI increases may pass through to downstream consumer goods, though this is constrained by market competition and demand elasticity. 3) Indirect effects on food prices through increased costs for fertilizers, pesticides, agricultural fuel, transport, and packaging materials.
Regarding China's capacity to handle the current price surge, experts express optimism. Firstly, domestic crude oil production remains stable, and natural gas production is growing steadily, ensuring basic demand can be met with capability to handle extreme situations. Secondly, China possesses substantial petroleum reserves, categorized mainly into strategic national reserves and commercial reserves. Strategic reserves, directly controlled by the state, are a core component of energy security, designed for crises or severe supply disruptions. Commercial reserves include mandatory reserves stipulated by law for importers/processors and voluntary corporate reserves, though the scale of commercial reserves is relatively smaller. Additionally, the proliferation of new energy vehicles and the sustained development of renewables are effectively reducing rigid demand for oil and gas.
Looking at the future trajectory of international oil prices, the market has experienced significant volatility. Recent military actions and the blockade of the Strait of Hormuz, a vital chokestone for about one-fifth of global oil supply, have raised serious concerns about future supply. Analysts believe the future direction of prices hinges on key variables: the status of transport channels, potential releases from strategic petroleum reserves, and the duration of Middle Eastern conflicts.
Financial institutions suggest that a return to pre-conflict price levels is unlikely in the short term. The recent announcement of a temporary ceasefire provided some market relief, pulling prices below $100 per barrel. The future path will depend on whether a lasting agreement is reached and normal shipping levels resume through the Strait. Market volatility is expected to persist during negotiations. The timing and extent of a recovery in shipping remains uncertain, and energy infrastructure repairs could take weeks or months. Even under optimistic scenarios, a complete reversal of the price increase is not anticipated soon. Some analysts project a gradual decline if the ceasefire holds, with estimates suggesting an average around $95 per barrel in the second quarter, potentially falling to around $80 by the fourth quarter. The lower bound for the year might be around $85, but prices could rise further if countries begin stockpiling for energy security reasons.
The conflict has also impacted major oil companies. ExxonMobil reported that first-quarter earnings could be reduced by approximately $6.5 billion, largely due to accounting treatments for hedging contracts, alongside losses from production and refining disruptions and trading losses from undelivered hedged physical cargoes. A significant portion of the company's production and refining capacity is linked to the Middle East.
Amidst the volatility, the advantages of New Energy Vehicles (NEVs) are becoming more pronounced. Chinese automakers like BYD, SAIC Motor, XPeng, and Leapmotor are seeing growing overseas demand for their NEVs due to product strength, cost-effectiveness, and service advantages. Experts note that rising demand in fuel-cost-sensitive regions is opening new growth avenues for Chinese NEV exports. In the global shift towards vehicle electrification, Chinese manufacturers are poised to capture greater market share.
Dealers report booming sales, attributing the trend to high fuel costs making NEVs more economical. Orders have surged in markets like Australia and Singapore, with some outlets seeing weekly orders equivalent to previous monthly volumes. Even in traditional oil-producing countries, Chinese NEVs are gaining acceptance.
Automakers confirm the export boom. SAIC Motor reports NEV exports as a core business, driving a significant year-on-year increase in overall overseas sales. BYD, having ceased production of internal combustion engine vehicles, is benefiting greatly from its focus on NEVs, with nearly half of its total sales now coming from overseas markets. Its exports are growing across Europe, Southeast Asia, Latin America, and Australia. Leapmotor also reported record-high quarterly exports, with spectacular growth in markets like Italy.
The strong performance of NEV manufacturers is boosting overall vehicle exports. In the first quarter, China remained the world's top auto exporter, with NEVs constituting over 40% of exports and serving as the primary growth driver.
Industry analysts conclude that when oil prices are high, the necessity of travel makes the benefits of NEVs more apparent. The ongoing rise in oil prices is accelerating a global shift in consumer preference towards more fuel-efficient and environmentally friendly vehicles, creating new opportunities for the expansion of Chinese NEVs overseas. Analysis suggests that unlike other upstream cost increases, rising oil prices directly affect consumer driving costs, thereby influencing vehicle purchasing decisions. Sustained high oil prices are expected to enhance the competitiveness of pure electric and low fuel-consumption hybrid vehicles globally, potentially allowing Chinese automakers to accelerate the conversion of their competitive advantages into increased global market share.