Domestic and foreign oil giants are falling over themselves to expand their oil retailing businesses in China, with five of them currently going head to head for the same Shanghai firm.

The five firms Sinopec, PetroChina, China National Offshore Oil Corp (CNOOC), BP and Royal Dutch Shell are reported to be in talks with a privately-owned oil company in the commercial southern hub to buy its service stations.

The negotiations come amid market speculation the government will change the country's refined oil pricing mechanism, fuelling expectations of higher prices of oil products.

An official at Shanghai Xingcheng Oil Company confirmed talks were taking place with the five firms.

"We are in touch with each of the five giant companies, but I cannot predict when there will be further developments in the deal," said the official, who refused to be identified.

Spokesmen from CNOOC and Shell said on Friday they were not aware of the deal. BP, PetroChina and Sinopec declined to comment.

Shanghai Xingcheng, established in 1996, has 20 service stations in the Shanghai region and a 10,000-cubic-metre oil tank.

In 2004 its sales volume reached 250,000 tons of refined oil such as gasoline and diesel, sources said.

The company official at Xingcheng refused to disclose profit and revenue, but said the firm expected to ensure stable refined oil supplies through the possible deal.

"State-owned oil companies and foreign oil heavyweights will get a major stake in our service stations if they guarantee us stable oil supplies," she said.

Under current regulations, only State-owned oil companies such as PetroChina and Sinopec are allowed access to oil sources. Private firms can only get involved in retailing.

Owning a stake in Shanghai Xingcheng's service stations would enhance the strength of any of the five oil giants in the Yangtze River Delta area, especially at a time when China has promised to free up the refined oil market, said industry analysts.

Government officials and executives from Sinopec and PetroChina gathered in South China's Guangzhou city on Thursday to discuss pricing reforms in the refined oil sector, insiders disclosed.

"The new pricing mechanism will create closer links between domestic refined oil products and world crude oil," said one source.

That means domestic refined oil prices will increase if world crude oil price keeps going up, giving oil retailers higher profit margins, the source added.

"We want to massively expand our service stations, but escalating competition means it is no easy task," Liu Junshan, CNOOC spokesman, told China Daily on Friday.

Source: China Daily