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Sinopec switches on oil transfer price

By Yu Hongyan (chinadaily.com.cn)
Updated: 2008-10-21 18:37

Just one month after raising its transfer price, Sinopec lowered the price within regional companies, signalling a downward shift of domestic refined oil prices.

An industry insider close to Sinopec said that the company issued a notice Friday requiring its regional companies to lower the diesel transfer price by 150 yuan ($21.93) per ton (before tax) from Monday while maintaining the current gasoline price, the Shanghai Securities News reported.

But the company had just raised the transfer price of refined oil products by 50-100 yuan per ton in mid September, reasoning that the move would balance its internal operation and would not interfere the wholesale price or the supply in the market.

Industry insiders believe Sinopec raised the price at that time to maintain sales prices for companies at the provincial level, and said it was also a strategy to keep up profits for regional companies.

Comment from the newspaper regarded Sinopec's previous price raising move as being against the market situation, given the abundant supply in the domestic market and stockpile pressure on Sinopec itself.

But the new move to cut prices was forced as the market dropped.

Wholesale prices of refined oil products have already fallen below the regulated price in

Guangdong province and the price in Henan has dropped to 6,200 yuan per ton, 400 yuan less than the regulated price, according to Toprise Information & Technology Co, an oil and gas consulting company.

Price wars started in local refinery areas last week. The mainstream price of diesel in Shangdong refinery factories has come to 6,300 yuan, down 350 from last week, and that of Shaanxi stands at 6,360 yuan, 300 yuan lower than a week before.

"Currently, the international oil price has plunged below $80 or $70 per barrel, and price reduction will be inevitable in the domestic diesel market. Sinopec's cut on the diesel transfer price is to follow the prevailing trend as well as a way to enhance the competitiveness of its sales companies", said Li Yu, chief editor of oilboss.cn in an interview with the paper.

As the largest refinery retailer in China, Sinopec's price cut this time signals a drop in the country's retail prices of refinery oil products, said an insider.