Sinopec, which owns 70 percent of Shanghai's petrol stations, is to lower fuel prices by up to 7 percent at some of its local pumps from tomorrow. Rival PetroChina cut prices last week.

The cuts, the first time Sinopec has cut retail prices by itself in Shanghai, indicate intensified competition in the fuel market after crude oil costs fell and the government relaxed price controls.

Sinopec's 93-octane gasoline will cost 0.35 yuan less at 4.71 yuan (69 US cents) a liter at 44 of around 570 stations in Shanghai. PetroChina cuts its prices by 0.3 yuan for the same type of fuel at all its 150 or so local stations.

The price of 90-octane fuel will be lowered by 0.25 yuan to 4.40 yuan a liter and zero-grade diesel will fall by 0.35 yuan to 4.50 yuan, Sinopec said.

Most of the 44 Sinopec stations are in suburban areas. Shen Xiangyang, deputy general manager for Sinopec's Shanghai sales branch, said it selected the 44 stations which were most affected by the PetroChina price cut.

"In some stations, we saw sales fall by 20 to 30 percent as drivers turned to PetroChina stations nearby," Shen said.

"So we have to take action to maintain our sales volume. We made our price-cut decision after talking to the government," he said.

Sinopec and PetroChina have been offering matching prices for a long time. But analysts expected competition to heat up after China introduced new pricing rules. Under China's old fuel-pricing mechanism, retailers were allowed to charge 8 percent more or less than the government's guide price. But the new system uses an upper limit instead, which allows more flexibility to make price cuts.

The government lowered fuel prices on December 19 to reflect cheaper crude, and analysts said oil firms' own cuts indicated that the government had room to further cut prices.

Sinopec stations in many other provinces and cities have also cut prices after PetroChina's move.

(Shanghai Daily December 31, 2008)