Domestic oil sales face three major pressures
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October 09 11:20:26, 2025
At the recent Shanghai Petroleum and Petrochemical Economic Forum, industry experts raised concerns about the future of China’s refining and sales sector. While oil demand is expected to remain robust, the sector is anticipated to face significant challenges. Three major pressures are likely to impact the industry: volatile crude oil prices, increasing international competition, and evolving national policies.
Despite the government's focus on energy conservation and emission reduction during the "Eleventh Five-Year Plan," which includes measures to curb high-energy-consuming industries and reduce reliance on disposable energy sources like oil, the overall demand for refined products is still expected to grow due to the country’s rapid economic expansion.
Over the past decade, China’s economy has grown rapidly, driving strong increases in refined oil consumption. By 2010, the transportation sector’s share of the tertiary industry was projected to rise from 16.4% to 18.2%, while motor vehicle ownership was expected to grow at an average annual rate of 7%, with gasoline vehicles up 7.1% and diesel vehicles up 6.6%. Total oil demand in 2010 was estimated to reach between 390 million and 400 million tons.
This growing demand has attracted global oil giants, intensifying competition in the Chinese market. As China becomes a key battleground for international players, many foreign companies are seeking ways to enter the market and capture a share of this high-growth region.
Experts also noted that during periods of high crude oil prices—currently hovering between $50 and $70 per barrel—it is unlikely to fall below $50 again soon. This trend is expected to push up refined oil prices more significantly than crude oil, leading to a new era of higher processing profits globally. However, domestic refined oil prices have struggled to keep pace with international levels, resulting in lower profit margins.
China’s refining industry lags behind global standards in terms of scale, technology, and cost efficiency. With an average refinery size of just 6.01 million tons—lower than both the global average of 6.47 million tons and the Asian average of 7.15 million tons—Chinese refineries face challenges in competing with international counterparts. These limitations affect key financial performance indicators.
In addition, domestic refining and sales companies are under pressure from policy changes. The full liberalization of the retail and wholesale markets in December 2006 allowed foreign oil majors to enter the distribution chain. Many top global companies, including BP, have invested heavily in China, with BP alone investing over $4.5 billion and establishing more than 1,500 gas stations. These foreign entries are likely to trigger price wars, directly affecting domestic oil sales.
Moreover, the opening of import and export channels, along with reduced tariffs, is exposing the domestic market to cheaper imported fuels from neighboring countries. Environmental regulations also add to the financial burden, as companies must invest heavily to meet stricter standards.
Overall, while China’s refining and sales sector remains crucial to the economy, it faces mounting challenges from global competition, policy shifts, and rising costs. To stay competitive, the industry must continue to modernize and adapt to the changing landscape.
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