Chinese oil refiners suffered a loss of about 3,000 yuan (US$ 435) for each ton of production before the overnight price rise. This was due to the widening gap between the frozen domestic and soaring global prices.

Xu Kunlin, deputy head of the pricing department with the National Development and Reform Commission (NDRC), made the remark during an online interview on Friday.

He said huge losses registered with refiners were the major factor that had prompted the latest price increase in fuel prices by the Chinese government.

The commission announced late Thursday retail prices of gas and diesel would be raised by 17 percent and 18 percent respectively.

Refiners, squeezed by huge losses, were forced to halt or suspend production, which created a tight supply on the domestic market and long queues at service stations.

A local refiner in Shandong Province operated at half its capacity last year, and at 40 percent this year, according to Xu, who made a recent trip to the company.

While speaking of the fall in global crude prices following the news of the increases in China, Xu said factors that could affect the global prices were widely varied and complicated.

"But it would be good if China's adjustment on fuel prices would help the prices to fall ... as nearly 50 percent of domestic oil consumption had relied on imports," he said.

"Given the big oil consumption in China, I think the price rise would dampen domestic demand, and therefore to some extent would help control the rising international prices."

He also said the rise of fuel prices would have limited power to stoke the inflation rate, as prices directly related to people's livelihood remain unchanged.

An increase in costs for producers after the rise, however, would probably not go beyond the production sector in the circumstance of an oversupply on the domestic consumer product market, he added.

(Xinhua News Agency June 21, 2008)