China Petroleum and Chemical Corp (Sinopec), Asia's largest oil refiner, reported a small rise in first-half profit on the back of higher oil and gas prices and sales volumes, although the benefits were largely offset by the government's price controls on refined fuel. The nation's second largest oil and gas producer posted a 6.6 per cent year-on-year rise in first-half net profit to 35.46 billion yuan (HK$40.54 billion) from 33.25 billion yuan. The profit is 9.4 per cent higher than the median estimate of 32.4 billion yuan in a survey by Bloomberg of 10 brokerage analysts. Second-quarter net profit fell 10.6 per cent year-on-year to 19.68 billion yuan from 22 billion yuan, but it was 24.6 per cent higher than the 15.79 billion yuan profit recorded in the first quarter. First-half operating profit from oil and gas production surged four-fold year-on-year to 22 billion yuan, thanks to a 40.7 per cent jump in natural gas output and a 97.9 per cent rise in average oil selling price to US$67.3 per barrel. Oil output was flat at 21 million tonnes. However, refining operating profit plunged 71.4 per cent to 5.69 billion yuan, as profit margins were squeezed by much higher crude oil prices and Beijing's holding back from letting fuel price rise by the same degree to fight inflation. Fuel marketing operating profit rose 15.5 per cent to 14.45 billion yuan, on the back of an 18.1 per cent rise in refined fuel sales to 68.15 million tonnes. Chemical profit slid 14.5 per cent to 8.34 billion yuan despite a 24.7 per cent rise in six key products to 16.65 million tonnes. According to a Citi research report, chemical profit margins have slid across the region. China's rapid ramp-up in supply is a major contributor to lower profitability. Second-half supply is expected to continue to rise, as Sinopec began trial production at a new plant in Zhenhai, Zhejiang, in June, and put its Tianjin new plant into commercial operation in May. Still, a 25 per cent jump in ex-factory gas price since June 1 will boost Sinopec's bottom-line. The company plans to produce 6.32 billion cubic metres of gas in the second-half, up 11.5 per cent from the first-half. Gas took up 18.3 per cent of total oil and gas production, up from 13.7 per cent in the year-earlier period. Second-half oil output will again be flat at 21.5 million tonnes. Sinopec's share price has recently under-performed the market due to concern Beijing will maintain a tight grip on refining margins.