China Petroleum & Chemical (Sinopec) said its first-quarter net profit fell 69 per cent from a year earlier due to surging crude oil costs. Sinopec imports about 80 per cent of its total oil needs, and its refineries break even if oil import prices are $76 a barrel or lower.

To cover its losses, SNP received a government subsidy 4.9 billion Yuan ($700m) in the fourth quarter and 7.4bn Yuan ($1.1bn) for the first quarter of this year. So at a time when global oil giants are reporting record profits, Chinese oil companies are suffering heavy losses because of government controls freezing retail gasoline and diesel prices.

Refiners must still pay rising market prices for crude oil, of course, while the Beijing authorities force them to accept below market revenues. That's why PetroChina - China's biggest oil company, and the most heavily weighted stock in Shanghai – said its first quarter profit plunged 31.5 per cent.

Last week, a rumor was floated that Beijing would allow higher prices for gasoline and diesel supplies, and Sinopec quickly surged 10 per cent, the daily stock market limit. PetroChina's stock jumped 7 per cent to 17.86 Yuan.

But these rallies fizzled out after Beijing squashed the speculation. Beijing controls $1.75 trillion in foreign exchange reserves, and can easily subsidize fuel at artificially low prices for many years to come - which means Chinese demand for oil can continue to increase by 500,000 barrels per year.

Image: An oil well pumps crude near a gas station advertising its gas prices. | Photograph: David McNew/Getty Images