Why did the gas stations decide to lower prices? Dong believes that they reduced their prices to meet market changes. The price of crude oil on the international market dropped to $59.33 per barrel on November 13 from its peak of $147 per barrel this summer, reducing the costs of refined oil on the domestic market, so that wholesale prices plummeted, he said.

At present, the wholesale price of diesel oil in China is 6,000 yuan ($878) per ton, while the retail price is 7,000 yuan ($1,024.89) per ton. The wholesale price of 93-octane gasoline is between 7,000 yuan and 7,200 yuan ($1,054) per ton and the retail price is above 8,000 yuan ($1,171.3) per ton. Refineries in some places such as Shandong Province have lowered the wholesale price of gasoline and diesel oil to about 5,000 yuan ($732.06) per ton. Because the wholesale prices of refined oil have dropped sharply while the retail prices have remained the same, gas stations are making handsome profits.

Dong said oil prices on the domestic market now have surpassed those on the international market, and calls abound for reducing the price of refined oil so that domestic oil prices can be linked with the international market. Under such circumstances, private gas stations have decided to lower prices to attract more customers.

A comparison of oil prices in Singapore and China's Guangdong Province indicates that since October, the price of each ton of oil in Guangdong has been 1,000 yuan ($146.41) more than that in Singapore.

Far from market-oriented

In 2001, China set the principle of pegging domestic prices for refined oil to the weighted average of refined oil prices in New York, Singapore and Rotterdam. When international oil prices fluctuated 5-8 percent, domestic oil prices would not change; but if the fluctuations were greater than this, the NDRC would adjust the benchmark retail price.

But this scheme has never actually been realized, because the NDRC can never catch up with the frequency of international oil fluctuations. Even if gas stations now reduce their prices to meet the market, oil prices in China are still divorced from those on the international market.

According to statistics released by CBI (Shanghai) Co. Ltd., an integrated bulk commodity service provider, in the natural month between September 29 and October 28, the weighted average price of crude oil in Brent, Minas and Dubai stood at $76.61 per barrel. Considering freight, processing costs and other costs, the ex-factory price of gasoline after tax in China was 5,586 yuan ($817.86) per ton and that of diesel oil was 5,380 yuan ($787.7) per ton. If Sinopec links its floating, national average ex-factory prices of gasoline and diesel to the international market, then the domestic prices for gasoline and diesel oil still permit leeway for price reductions of 898 yuan ($131.48) per ton and 692 yuan ($101.32) per ton, respectively, in theory.

While taxi driver Zhang said he knew nothing about the formulation of domestic oil prices or the calculation of the weighted average, there was one thing that puzzled him: In 2006 when international oil prices were lower than $60 per barrel, the retail price of 93-octane gasoline in China was 3.97 yuan ($0.58) per liter. Now that international oil prices are less than $60 per barrel, the retail price of 93-octane gasoline in China is 6.37 yuan ($0.93) per liter. So why is there such a large gap? Obviously, there is still room for oil price reductions in China, Zhang said.

Right time to reform

Domestic oil prices that are divorced from the international market have made the pricing system reform of refined oil become a hot topic in China again. An official at the NDRC's Office of Policy Studies, who asked to remain anonymous because the reform issue is a sensitive one, told Beijing Review that the commission and other related ministries have been researching the reform of the refined oil pricing system. They have completed their preparations and are waiting for the right opportunity, the official said.

Most of the reform participants believe that the first half of next year may be a good time to launch the reform. During this time international oil prices will not increase sharply, and the risk of linking domestic oil prices to the international market will be minimal, the official said.

"When international oil prices rise sharply, oil companies insist on linking domestic oil prices to the international market; when international oil prices drop sharply, consumers insist on linking domestic oil prices to the international market," the NDRC official said. "But in terms of the reform of the refined oil pricing system, we consider it more for the consumers."

Dong said he believes that now it is the right time to carry out the reform. When international oil prices are less than $70 a barrel, China will be able to smoothly carry out the reform, because once the country links its oil prices to the international market, they will decrease, not increase, he said.