According to police nearly 3,000 people were arrested last year for stealing oil in crimes which cost the industry more than 1 billion yuan ($124.6 million) and caused the economy untold damage.
"Oil issues in a large, developing country like ours with relatively few of its own reserves, impact upon national security, social stability and the economy's sustainable, fast and healthy development," Ma Weiya, vice director of the police's social security management department, told a press briefing in Beijing.
"Criminal punishments will be meted out, including the death penalty, as stealing oil in some areas has reached such a serious level it has wrecked production facilities," Ma said.
"The highest penalty for destroying facilities that are easily combustible is death, because it threatens public safety," he added.
Though police said the number of cases involving oil theft or illegal drilling had fallen, they were still concerned that many incidents were going unnoticed in China's vast countryside, home to some 700 million people.
"They put huts up and drill into pipes underneath," Ma said. "Many we don't find."
The temptation is that much greater due to soaring global crude oil prices, he added, and hard to resist for peasants who earn a third as much as their urban cousins.
"The reason they steal oil is to sell it, and as prices are so high that encourages stealing"
Ma Weiya, vice director of police social security management department
China is the world's second largest oil consumer, and with soaring energy demands to fuel its rapidly growing economy has become a major importer of oil.
That in turn has added further pressure to global oil prices, which last year climbed to a record $70 a barrel.
"The reason they steal oil is to sell it, and as prices are so high that encourages stealing," Ma said.
Last year state media reported on farmers in impoverished central China who, tempted by rocketing world crude prices, were stealing oil from pipelines in plastic bags and earning up to $1,000 a month selling it to small refineries.
People living near Chinese gas fields have even been caught using huge balloons to capture the valuable commodity, which they then carry away on bicycles.