According to government regulation, Sinopec is in charge of crude oil distribution to the local refineries, and oil product sales are only offered by the oil behemoth's wholesale partners instead of the refineries themselves.

Double-pressed by monopoly and shortages, the company, which used to be a small refinery with productivity of only about 1 million tons, was reformed by Chemical China in 2005.

"Despite that the company now is a state-owned enterprise, it suffers even more than private refineries when an oil shortage occurs,"says Zhang.

Some local refineries, sensing trouble, reduced or froze output before the shortage really took root. But as a state-owned enterprise, the company has to prop up oil supplies in surrounding cities. Meanwhile, it is still tormented by the monopoly of the industry as other private refineries are.

The company's present productivity is 3 million tons a year, far exceeding the 100,000 tons of crude oil previously planned to be supplied to it yearly. With such a gap, the company has resorted to importing fuel oil from Southeast Asia.

Fuel oil is the remnant of crude oil after the first round of refining.Refining oil product from fuel oil is not only technically challenging, energy-consuming, and expensive, but both quantity and quality of the output are disappointing.

Early in May, the company sensed financial disaster on the horizon. It narrowly escaped massive losses by transferring one third of its productivity to more profitable chemical products. Had it limited its production to refining, it would have lost up to 100 million yuan.But because most local refineries do not have petrochemical equipment, they do not have this option—they can only limit or stop refining.

A source with a refinery in Zibo, another city in Shangdong, calculates that at the current crude oil price of

80 dollars per barrel, the company loses 600 yuan per ton it refines, and 1,000 yuan per oil product it produces.