Nov. 10 (Bloomberg) -- China Petroleum & Chemical Corp., and PetroChina Co., the nation’s two largest oil refiners, rose in Hong Kong trading after the government increased gasoline and diesel prices for the first time in more than two months.

China Petroleum, also known as Sinopec, climbed as much as 2.6 percent to HK$7 and was unchanged at HK$6.82 at the midday break. PetroChina gained for a fifth day, rising as much as 2.8 percent to HK$10.32. The benchmark Hang Seng Index increased 0.9 percent.

The adjustment is China’s fifth under a system introduced in December that keeps oil-product prices in line with global crude costs and ensures refiners a profit. The world’s second- largest energy user is raising prices of motor fuel and jet fuel as the economy expands at the fastest pace in a year, spurring consumption, and as crude oil prices climb.

“China has the potential demand despite the price climb,” said Anthony Nunan, assistant general manager for risk management at Mitsubishi Corp. in Tokyo. “Demand is so high that even at these levels, they can withstand it.”

Pump prices for 90 octane gasoline are set at a maximum of 5.98 yuan (88 cents) a liter, or about 22.6 yuan a gallon, in Beijing, the National Development and Reform Commission, China’s top economic planner, said on its Web site yesterday.

Crude oil prices have gained 77 percent this year. Oil for December delivery traded at $79.06 a barrel, down 37 cents, in electronic trading on the New York Mercantile Exchange at 12:45 a.m. Singapore time.

Inflation Boost

China controls fuel prices to keep inflation in check. Under the new pricing mechanism, the government may adjust prices when crude-oil costs change more than 4 percent over 22 working days, the reform commission said in May.

The nation has revised prices eight times since December, including today’s move, compared with two adjustments in 2008. In dollar terms, the increase will take the pump price of gasoline to about $3.31 a gallon in China, compared with $2.68 in the U.S.

The fuel price increase will lift November’s consumer price index reading by 0.12 percentage point, the commission said. Still, the move doesn’t pose an inflationary risk, it said.

“I was looking for inflation to return in November. That will make the return of inflation all the more quicker,” said Ben Simpfendorfer, chief China economist with Royal Bank of Scotland Group Plc in Hong Kong.

Fuel Surcharges

Airlines in the nation will resume fuel surcharges on domestic flights after the price increase, the commission said. Taxi drivers will be able to charge higher fares or add fuel surcharges to pass on higher costs, it added.

The relaxation of price curbs helped Sinopec post a record profit in the second quarter. Third-quarter profit for Sinopec slipped 25 percent from the previous three months as state-set price increases lagged behind gains in crude costs.

The prices of gasoline and diesel have risen by about 27 percent this year after the increase, while crude has doubled, the commission said.

“The motivation to follow crude prices higher will weaken if crude rises,” said Wang Aochao, an analyst at UOB-Kay Hian in Shanghai. “The government will be more cautious if they have to increase fuel prices and may choose to prolong the duration in between adjustments because once fuel prices go up, they’ll want to keep it there and see if the economy can take it.”

China may use 8.3 million barrels of oil a day in 2009, 9.8 percent of the world’s oil use and 46 percent of Asia’s, according to data from Paris-based International Energy Agency.

Refining Margins

Sinopec’s refining margins fell to $5.20 a barrel in the three months to September from $9.20 in the second quarter and the company’s refining business incurred losses in September and October, Chief Financial Officer Wang Xinhua said on Oct. 30.

“This hike will increase refiners’ gross margins by around $5” per barrel, UOB-Kay Hian’s Wang said.

The gasoline price charged by refiners is raised 7 percent to 7,100 yuan a ton, starting today and the diesel price gained 8 percent to 6,360 yuan a ton, the commission said. Jet fuel prices rose by about 7 percent to 5,190 yuan a ton.

“The fuel price adjustment will encourage refineries to boost production and guarantee domestic supply,” the commission said in the statement. “It will also help energy conservation and reduce emissions.”

The increases may boost costs for manufacturers, farmers and airlines. Still, rising corporate profits and a recovering economy will help consumers cope with higher fuel prices. The world’s third-biggest economy may expand at a 9.5 percent annual pace this quarter, according to Zhang Liqun, a senior researcher at the State Council Development and Research Center.

To contact the reporters on this story: Baizhen Chua in Beijing at bchua14@bloomberg.net; Ying Wang in Beijing at ywang30@bloomberg.net.

Last Updated: November 10, 2009 00:28 EST