The battle of the giants

On March 20, the battle between PetroChina and Sinopec was still going on in southwest China's Guangxi Zhuang Autonomous Region.

PetroChina and Sinopec is the countries major rivals in the oil business. [CNS]

'Li Qiang' (an alias) is a medium-level official with Sinopec's Guangxi sales company. He mentions that the government's guideline price for 0# diesel oil's is 4.8 yuan per litre. Since March, however, PetroChina has pushed down its diesel oil price to 4.3 yuan per litre, applying heavy pressure to Sinopec's sales.

"PetroChina has only about 100 gas stations in Guangxi, while we have thousands. So our losses would be 10 times theirs, should we match their prices. But if we hold our prices, we won't meet sales volume objectives. To date, many of our branches have only made 50% of their monthly quota," said Li in disappointment.

According to a well-informed source, not only has PetroChina applied some dramatic reductions to retail prices, but the company is also offering remarkable wholesale prices to private oil businesses, as low as 4000 yuan per ton (3.5 yuan/litre).

In fact, this battle has been ongoing since the end of last year.

Vice Manager Zhong Jian of oilgas.com.cn points out that the international financial crisis has hit market demand for diesel oil hard. In February, the two oil majors' inventories were 88% higher than in the same period last year.

"This has had a serious impact on their standard business operations. In spite of their efforts in the export market, and a rebalancing of output between diesel oil and petroleum, they are still underselling diesel oil," said Zhong. "Both of the companies have fairly long production chains and gains in their oil exploration activities and in the chemical industry can help to compensate for losses in the refinery sector."

Zhong Jian also indicated that based on an international oil price of US$50/barrel, there is no more room for price cuts on domestic diesel. Balancing prices, volumes, and revenues, there is no winner in the price battle.