The recent fluctuations in energy prices have been relatively calm, with only minor adjustments, even as international crude oil prices climbed to $140 per barrel. However, when the timing of price reforms comes into play—especially as energy prices begin to fall while CPI rises—it seems that few are paying attention. This quiet period, however, might be a crucial window for meaningful change. One key reason behind the drop in international oil prices is the push for energy price reform. The main issue has long been that domestic energy prices remain low, with refined oil prices even falling below international levels, causing significant losses for oil companies. While raising prices is not the sole goal of reform, it's an essential step toward rationalizing energy pricing. Yet, this part remains one of the most challenging for decision-makers, especially under high inflationary pressures. Now appears to be a favorable moment. Since late July, international oil prices have dropped significantly, currently hovering between $110 and $120 per barrel. Meanwhile, CPI growth has declined for three consecutive months, reaching 6.3% in July. Although this isn't as ideal as a $80 oil price with 5% or less inflation, it’s still a viable opportunity. The last major energy price reform was pushed in June, when oil hit nearly $140 per barrel, leading to heavy subsidies and forcing the government to raise refined oil prices by 17% and sales prices by about 4.5%. After mid-July, as the dollar strengthened, oil prices fell sharply, dropping over 20% from their peak. This presents a real chance to adjust domestic energy prices more reasonably. Domestically, the economic trend is aligning with expectations. The 6.3% CPI increase in July was lower than many forecasts and marked a three-month decline in inflation, signaling a shift from structural to broader inflation. Experts predict this trend will continue, giving the government more room to act. Whether the reform can proceed on schedule is now a hot topic. Despite lower oil prices and sufficient domestic stocks reducing the pressure for price adjustments, energy price reform is a complex, systemic project. Choosing the right timing—when volatility is lower—is critical. “Now is a relatively good opportunity,” said an expert from the National Development and Reform Commission’s Energy Development Institute. “While we may not fully straighten out prices, we can move forward. It will reduce subsidy pressures and lay the groundwork for future integration.” Zhu Baoliang, chief economist at the National Information Center, warned that short-term price adjustments could temporarily increase inflationary pressures, but if done strategically, these pressures would eventually ease. Zuo Xiaolei from Galaxy Securities also urged seizing the moment to reform oil and electricity pricing, noting that China doesn’t face the same hyperinflation risks as other countries. Experts agree that the drop in oil prices is not a long-term trend. Prices are expected to rise again, making it urgent to implement reforms now. At current levels of around $110 per barrel, there’s still a gap of about 2,000 yuan per ton between domestic and international refined oil prices. China’s energy price reform aims to align with global market rules, moving away from distorted pricing to promote efficiency and sustainability. The transition from a government-controlled system to a market-based one is ongoing, with the goal of reducing waste and greening industrial structures. Despite having a comprehensive pricing mechanism since 2005, the system hasn’t functioned effectively. Currently, refined oil prices are still set by the government, not the market. Some experts argue that a gradual approach is necessary due to national conditions and the complexity of the reform, which involves multiple sectors and requires supporting policies. With China’s crude oil import dependence nearing 50%, delaying reform could lead to greater challenges when oil prices rebound. As one expert from the National Development and Reform Commission warned, missing this opportunity means facing increasingly difficult problems down the line. Zhang Guobao, deputy director of the National Development and Reform Commission, recently stated that post-Olympic price adjustments will be based on overall economic and energy conditions. Analysts believe the government is preparing for more proactive reforms, shifting from reactive measures to a more strategic, fundamental approach.

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