China Wednesday raised the price of refined oil products for the first time in three months to reflect the oil price spike on the international market.

The move also spells out relief for domestic refineries that have been suffering losses because of rising crude oil costs.

The National Development Reform Commission yesterday raised benchmark gasoline rates by 240 yuan (US$29) a ton and diesel prices by 220 yuan (US$26.60) a ton. The price hikes represent about a 7 per cent increase over the previous level.

China's current oil prices vary in different provinces and regions. Oil companies are allowed to raise or drop retail prices by 8 per cent from a government-set benchmark.

In Beijing, retail gasoline prices have hit a new record high. The benchmark 90-octane gasoline rose by 0.19 yuan (2.3 US cents) to 3.42 yuan (41.4 US cents) a liter. The 0-octane diesel increased by 0.19 yuan (2.3 US cents) to 3.46 yuan (41.8 US cents) a liter.

Experts say the price adjustment is to catch up with the international crude oil price hike.

New York oil futures peaked at US$48 a barrel last week. Prices have gained 22 per cent since the end of June amid rising global demand and risks to supplies from Russia, Iraq and Venezuela.

China pegged its domestic refined oil products to average rates in Rotterdam, New York and Singapore.

Despite the price spike on the international market, the government hasn't adjusted the prices since mid-May because the government is concerned that the price increase may undermine its efforts to cool down the economy.

Refineries, however, have to suffer heavy losses as they cannot pass on rising costs of processing crude oil.

"The increase of refined oil prices is good news for refineries," said Gong Jingshuang, an expert with Economic Research Center with the China National Petroleum Corp. "It is conducive to the bottom line of oil companies, especially refinery-heavy Sinopec."

China's three largest oil producers - PetroChina Ltd, Sinopec Corp and CNOOC Ltd - gained windfalls in the first half of this year, thanks to the crude oil price hike.

CNOOC yesterday reported its net profit increased 11.2 per cent year-on-year to 7.0 billion yuan (US$850 million) in the first half of this year.

Analysts say they believe Sinopec will achieve a half-year profit increase of about 48 per cent while PetroChina's will increase by about 11 per cent in their interim reports later this week.

Gong said the demand for oil products will remain strong in following months, despite the price increase.

A thriving car market, rising investment in power, infrastructure and construction are boosting demand for oil products.

The rapid growth in demand for oil products has forced Chinese refineries to run at top rates in previous months, leading to a crude oil import surge in the first seven months of this year.

(China Daily August 26, 2004)