Shares in the mainland's two leading oil refiners were mixed yesterday after Beijing said it would raise fuel prices by less than was needed to make up for last month's higher crude costs. Analysts said if the oil price remained at about US$70 a barrel for the next two months, another price rise would be needed for refiners to avert losses next month. China Petroleum & Chemical (Sinopec) edged up 0.8 per cent to HK$6.59 while PetroChina fell 1.7 per cent to HK$8.51. In Shanghai, PetroChina rose 0.9 per cent, while Sinopec was flat. Analysts said the performance reflected Sinopec's much greater exposure to the refining business than PetroChina, which derives most of its profit from oil and gas production. The central government yesterday lifted petrol and diesel prices charged by refiners to distributors by 300 yuan (HK$340.41) per tonne, or about 5 per cent. At the pump, motorists in Beijing have to pay 3.9 per cent more for petrol and 4.3 per cent more for diesel. The 300 yuan increase was lower than the 500 yuan expected by the market, but it was a surprise to those who believed a rise would be delayed until early next month. Under the new system that came into effect in December last year, domestic fuel prices 'can be adjusted' when the moving average of international crude oil prices over a 22-day period changes more than 4 per cent from the previous price adjustment date. When the crude price exceeds US$80 a barrel, price controls will ensue and margins will be squeezed. Between the latest and the previous fuel price rises, the 22-day moving average international crude price has climbed 12 per cent. Morgan Stanley's analysts said in a research note that mainland retail fuel prices had risen to a near record high, making it increasingly difficult for the government to pass on higher crude costs to consumers. 'We expect second-half refining margins to be lower than the first half's margin and remain cautious on the outlook for the Chinese refining sector,' they said. They estimated Sinopec's refining operation would only break even this month, while PetroChina would likely incur a small loss. Both made decent refining profits in the first half.
