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Zhang Jiansheng, a Beijing taxi driver, recently got a surprise when he refueled his car. He found that the price of gasoline had dropped at some gas stations.

"In the past, price hikes or drops at gas stations were changed only after the government announced a price adjustment, but recently the government didn't announce such an adjustment," Zhang said.

In China, the government sets prices for refined oil. The recent price adjustment in Beijing was made at midnight on October 7. After the adjustment, the cost of 93-octane and 97-octane gasoline stood at 6.37 yuan ($0.93) and 6.78 yuan ($0.99) per liter, respectively.

Zhang said some gas stations that have reduced their gas prices are either privately owned or have foreign investors, and their gasoline price is about 8 percent cheaper than those set by the government. So far, the National Development and Reform Commission (NDRC), which sets oil prices, has not intervened. On the other hand, most state-owned gas stations keep their prices at the government-set level. Zhang said he now only buys from filling stations that have reduced their prices.

Hou Hui, an analyst at the Research Institute of Economics and Technology of the China Petrochemical Corp. (Sinopec), believes that all gas stations could decide their own prices in the near future, because related government departments are ready to reform the country's pricing system for refined oil. The government has completed preliminary research on market conditions and the time to initiate the reform. Hou said the reform would fare well in the present market environment.

At the Energy and Finance World Forum in Beijing on November 3, Dong Xiucheng, a professor at the China Petroleum University, said that the present financial crisis would compel China to launch a new pricing system for refined oil. He believes that under the new scheme, prices should be adjusted more frequently, and enterprises should have more power to set their own prices.

The invisible hand

Not only in Beijing, but also in Wuhan, Tianjin, Jinan, Hangzhou, Xiamen and Xi'an, privately owned gas stations have been reducing their gasoline prices. Faced with the pressure of price reductions at these gas stations, the country's two national oil magnates, China National Petroleum Corp. (CNPC) and Sinopec lowered prices by 5 percent at their gas stations in Kunming and Hangzhou on November 9.

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.