Oct. 30 (Bloomberg) -- China Petroleum & Chemical Corp.’s profit fell from a record in the second quarter and may decline further as government-set fuel prices lag behind a rebound in crude oil costs, analysts said.

Asia’s biggest oil refiner yesterday reported a third- quarter net income of 16.55 billion yuan ($2.4 billion), a 25 percent drop from the preceding three months. Profit missed the 17.25 billion yuan median estimate of six analysts. The company known as Sinopec said today processing margins fell to $5.2 a barrel from $9.2 in the second quarter and its refining business incurred losses in September and October.

“It wouldn’t surprise if profit is lower in the fourth quarter,” said Gideon Lo, an energy analyst at DBS Vickers Hong Kong Ltd. “The big question is if the government will raise oil product prices and how high crude prices go.”

China, the world’s second-biggest energy user, controls fuel prices to keep inflation in check. The government raised gasoline prices 19 percent this year, while crude has gained 80 percent to about $80 a barrel. Higher oil prices will benefit rival PetroChina Co., the country’s biggest energy explorer, which posted a 24 percent drop in third-quarter earnings.

“The government seems to be dragging its feet on raising fuel prices,” said Michael Yuk, an analyst at Sun Hung Kai Financial in Hong Kong, who expects Sinopec’s profit to decline from the third quarter. “The government last increased the price of gasoline in September, when crude was trading around $70 a barrel. It’s a worry for Sinopec.”

Sinopec Shares

Sinopec, also China’s second-biggest oil and gas producer, climbed 1.7 percent to HK$6.74 in Hong Kong trading. The Hang Seng Index was up 2.3 percent. PetroChina rose 0.5 percent to HK$9.60, while Cnooc Ltd., China’s biggest offshore oil producer, advanced 4.5 percent to HK$12.02.

Sinopec has advanced 41 percent this year, mirroring gains in PetroChina. The Hang Seng Index has increased 48 percent in the period while Cnooc has climbed 59 percent.

Cnooc said yesterday net daily output in the third quarter rose 18.4 percent to 647,382 barrels of oil equivalent. The company is confident of meeting its production target of 225 million to 231 million barrels even though it lost some production after a typhoon slammed into fields in southern China in September, Chairman Fu Chengyu said a statement yesterday.

Refining Margin

Gains from turning a barrel of crude oil into fuels averaged $7.7 in the first nine months of the year, Chief Financial Officer Wang Xinhua said on a conference call today.

Nine-month net income more than tripled to 49.8 billion yuan, while sales fell almost 22 percent to 893.4 billion yuan in period, Sinopec said yesterday.

The company processed 134.4 million metric tons of crude in the first nine months, 3 percent more than a year earlier. Operating profit from refining in the period was 21.6 billion yuan, compared with a loss a year earlier, it said in a separate statement, without giving details.

The state-controlled Sinopec gets almost all its revenue from refining and the sale and distribution of fuels. Oil production accounted for just over 2 percent of sales, according to its 2008 annual report. The company imports about 80 percent of the crude it processes.

To contact the reporters on this story: Wang Ying in Beijing at wang30@bloomberg.net; John Duce in Hong Kong at Jduce1@bloomberg.net;

Last Updated: October 30, 2009 05:20 EDT