PetroChina, the nation's largest oil producer, slashed the retail price of petrol and diesel in Shanghai on Friday in an aggressive move to take on local market leader Sinopec - China's No 2 oil company.

A PetroChina official said the price cut was introduced independently by its Shanghai branch, and the company has no plans to discount in other areas.

On Friday, PetroChina's sales company in Shanghai reduced service station prices for all four petrol and diesel products by 6 fen (0.7 US cents) per litre, an average 2 per cent lower than prices on offer at Sinopec's outlets.

Since 2001, PetroChina has sold one of its products for 5 fen (0.6 US cents) less than Sinopec, but its other three products have retailed for the same price.

Xue Hua, vice-general manager of PetroChina's Shanghai banch, said the fresh price cut will improve the firm's presence in the Shanghai market, which is strategically important given its influence on oil-hungry Jiangsu and Zhejiang provinces nearby.

"The market in the country's east and south is the most important battlefield for us," said Xue. "My task is to maximize the market share."

Traditionally, the Shanghai market is regarded as Sinopec's turf. Sinopec now controls nearly 600 petrol stations out of a total of 1,000 in Shanghai, while PetroChina has taken over 140 stations since it entered the market in 1999. Sinopec makes up 65 per cent of the local retail sales market, while PetroChina accounts for 26 per cent.

Xue said that with its price cuts and improvements to service, PetroChina aims to increase its local market share to 30 per cent this or next year.

Even with the discount, Xue maintains, profits will increase as sales expand.

An official with Sinopec's Shanghai branch said they would not match PetroChina's price cut.

Under the current pricing system, the government sets a benchmark price for retail petrol and diesel products, based on the average prices in markets in New York, Rotterdam and Singapore. Retailers are allowed to vary these prices by 8 per cent, either higher or lower than the benchmarks set.

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