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After the nationwide lowering of oil prices beginning on December 19, Sinopec and PetroChina have successively cut oil prices in big cities, such as Guangzhou, Fuzhou, Shanghai, and Beijing, by up to 0.4 yuan per liter, something rarely seen in recently years. Now the two giants are each reducing prices in the other’s sales area, and a price war is brewing.
PetroChina first cut retail prices for 3 types of petroleum and diesel in 150 gas stations in Shanghai from December 25. The price for 90# petroleum was cut by 0.2 yuan per liter, while the prices for 93# petroleum and 0# diesel were both cut by 0.3 yuan per liter. Meanwhile, Sinopec cut oil prices in 18 stations in Guangzhou by up to 0.4 yuan per liter.
Shanghai and Guangzhou have long been Sinopec’s main market. Of the nearly 900 stations in Shanghai, about 500 are Sinopec’s while PetroChina has only 150.
Sinopec is going to cut prices in Shanghai for three types of petroleum and diesel by 0.25 yuan to 0.35 yuan per liter in 44 gas stations from January 1. This marks the first time Sinopec has cut retail prices for oil products in Shanghai.
Besides consolidating its traditional market, Sinopec is also challenging PetroChina in its rival’s market. On December 29, Sinopec cut oil prices in Chengdu by 0.2 yuan per liter. The price for 93# petroleum has now been cut by more than 4% to lower than 5 yuan per liter.
The present international crude oil price is floating at around $40 per barrel, and domestic oil product prices have dropped correspondingly. The newly issued national pricing mechanism for oil products allows free price adjustment on the oil product retail market. In the future, price fluctuation will become normal.
Analysts believe the price cuts this time have been triggered by the high level of oil in stock, for PetroChina’s petroleum and diesel stock is more than sufficient.
Following declining US oil demand, China’s crude oil imports have also dropped. In November, they fell by about 9% below the monthly average of the first ten months, marking the lowest monthly import this year.
According to Zhong Jian, chief analyst for oilgas.com.cn, a website based on the Shanghai Petroleum Product Development and Trade Association, price cutting will be a trend in future, as a buyer’s market has formed. In the next two to three years, many newly built or reconstructed refineries will be put into use, so growth will be higher than in past years. But demand has experienced negative growth, so, to cope, the two oil giants are actually having to compete with lower prices and better service.
Analysts point out that PetroChina beat Sinopec to the price-cutting punch due to its market layout. The company’s main marketing region is in the north of China, and its surplus resources it must sell to south China markets every month. Sinopec hasn’t cut prices in past years because its resource surplus was not so serious as it now is.
The new scheme for fuel tax reform only set the high limit for retail prices, and the National Development and Reform Commission has set no bottom for retail oil product prices, encouraging price competition between oil product operators.