Nov. 1 (Bloomberg) -- China unexpectedly increased fuel prices by as much as 10 percent in an ``urgent step'' to help the nation's oil refiners cover surging costs as crude touched records above $96 a barrel.

To ``guarantee domestic refined oil supply and promote energy conservation,'' gasoline, diesel and jet fuel prices will rise 500 yuan ($67) a metric ton starting today, the National Development and Reform Commission said late yesterday. China Petroleum & Chemical Corp., Asia's largest refiner, surged in Hong Kong and Shanghai trading.

China controls fuel prices to limit their impact on inflation in the world's most-populous nation. The commission, China's top economic planner, said in September there would be no energy price increases this year because inflation was exceeding a government target.

``It's a prudent measure -- to let businesses and consumers face the real price of oil,'' said David Cohen, an economist at Action Economics in Singapore. ``China's probably the biggest source of pressure on global oil prices, because of its surge in demand.''

September's inflation fell to 6.2 percent from an almost 11-year high of 6.5 percent in the previous month as food-price gains slowed. That decline may have led government officials to believe they had room to move on energy prices, Cohen said.

Sinopec's Loss

Sinopec, as Beijing-based China Petroleum is known, this week posted a third-quarter loss from turning crude into gasoline and diesel as it strains to supply the second-largest energy market at below-cost prices. Sinopec jumped as much as 11 percent to HK$12.90 in Hong Kong and by 8.9 percent to 27.35 yuan in Shanghai.

Benchmark gasoline prices will rise 9.1 percent and diesel by 9.96 percent, the commission said in its statement. Fuel retailers are able to sell products 8 percent above or below the state-determined levels.

The Chinese government will also increase prices for natural gas, excluding that used for fertilizer, by an unspecified amount at a future date, the commission said.

The higher fuel prices will add 0.05 percentage point to China's monthly inflation figure, the commission said today. ``We will strictly limit the impact of increasing fuel prices,'' the commission said in a statement on its Web site.

Record Oil

Crude oil for December delivery gained as much as $1.71, or 1.8 percent, to $96.24 a barrel in after-hours electronic trading on the New York Mercantile Exchange, the highest since trading began in 1983.

``At crude prices of $80 a barrel, China's refiners would make a loss of 1,000 yuan to process every ton of oil into fuels,'' the commission said in a statement last night. ``Some refineries have halted production due to the losses, putting heavy pressure on market supplies.''

The price increase is an ``urgent step'' to stimulate production and ensure supply, the commission said.

Sinopec's parent, China Petrochemical Corp., said yesterday it will run its refineries at full capacity in November, bearing ``heavy losses'' in a bid to ensure adequate fuel supplies. Sinopec Group has halted most diesel and gasoline exports since the start of the second half to meet domestic demand, it said.

Sinopec posted a loss of 5.3 billion yuan ($709 million) from processing oil in the third quarter because of rising crude costs and government price caps.

`Increased Pressure'

The refusal by some non state-owned retail filling stations to sell oil products has increased pressure on Sinopec to ensure adequate supplies to the market, Chief Financial Officer Dai Houliang said in Hong Kong on Oct. 30.

China is trying to tame energy consumption without disrupting the world's fastest-growing major economy. Fees for railway, airplane and other transport services will need to be adjusted because of the price increase, the commission said.

The pace of economic growth and changes in fuel subsidies in China and India are two of five main issues that will determine the outlook for the oil market in coming years, the International Energy Agency said. Subsidies in the two nations amount to about $15 billion a year.

``China and India will dominate oil demand growth estimates'' in the next few years, Fatih Birol, chief economist at the IEA said at a conference in London yesterday. ``The pace of Chinese economic growth is a huge uncertainty.''

The other three issues are oilfield decline rates, the possibility for alternatives to oil as a transportation fuel and whether international oil companies will become ``niche'' operators compared with national companies, he said.

China will be of ``equal'' importance to Saudi Arabia in oil markets in coming years, Birol said, citing the countries' respective influences on demand and supply.

To contact the reporter on this story: Nipa Piboontanasawat in Hong Kong at npiboontanas@bloomberg.net

Last Updated: October 31, 2007 23:13 EDT