China has asked its two major state-owned oil companies to guarantee supply and profit margins to independent fuel wholesalers, giving some relief to the struggling private sector.

Sinopec and China National Petroleum Corp must open fuel taps to independent dealers with which they have signed long-term supply contracts, said the National Development and Reform Commission and the Ministry of Commerce.

The oil giants will have to sell the fuel to private firms at 5.5 percent to seven percent below the state-set retail benchmark to ensure independent wholesalers can earn a profit, the statement said.

But Sinopec and CNPC can reduce supplies to wholesalers that sell fuel to petrol stations that they don't either own nor have a contract with, the statement said.

"This is a positive feedback after we appealed to the top authority," said Zhao Youshan, head of Petroleum Flow Committee that represents the independent distributors.

Margins at smaller private oil marketers have long been squeezed as their supply is mostly controlled by state giants. Sinopec and CNPC had reduced supply to private firms partly to trim losses caused by record high crude prices and capped retail prices.

As a result, many private players have been forced to quit the industry or be acquired by state firms who are also eager to expand distribution channels.

Analysts said the situation would only be significantly improved if the current retail pricing system, adopted to contain inflation, can be changed.

The government urged the big two companies, which dominate the domestic refining sector, to step up efforts to help restructure the private sector through acquisitions or joint operations.

Independent oil refineries without a wholesale license must sell their production to Sinopec and CNPC, and applications to build new service stations will be tightened, the statement added.

(Shanghai Daily March 6, 2008)