China's top oil refiners are set to reveal a surge in quarterly earnings on the back of fuel price increases and lower oil prices, reaping the benefits six months after Beijing shifted to more liberal fuel pricing.

But the second-half outlook for offshore oil producer CNOOC Ltd and PetroChina, which generate most of their earnings from exploration and production, remains dull, with oil prices seen remaining weak this year, said David Johnson, head of oil and gas
research at Macquarie.

The price of benchmark U.S. crude CLc1 averaged close to $60 a barrel in April-June, up from $43 in the previous quarter but less than half the levels seen a year ago. Crude was quoted on Thursday at around $72.40.

For the second quarter, analysts predict stronger profit growth at state-owned refiners Sinopec Corp and PetroChina -- a far cry from a year ago when refining margins were squeezed by soaring crude and low state-capped fuel prices.

In contrast, Western oil peers such as Exxon Mobil Corp and Royal Dutch Shell Plc have reported weaker second-quarter profits on depressed oil and natural gas prices.

Investors will focus on acquisition plans among the top energy groups, their outlook for oil prices and pricing details on a $41 billion liquefied natural gas (LNG) deal struck this week between PetroChina and Exxon.

China raised gasoline and diesel prices twice in June in a bid to track international crude prices. The fuel price reform grants refiners a guaranteed profit margin if crude stays below $80 a barrel.

By that yardstick, Sinopec, the world's No.2 refiner after Exxon, will outdo its peers as it has the highest exposure to refining, with the largest sales and distribution network for refined products in China.

Sinopec has to be my favourite, said Macquarie's Johnson. We don't believe oil prices are going to $80, so they will continue to get a good margin on the downstream businesses.

PetroChina, the world's most valuable oil and gas producer, should end two straight quarters of lower net earnings, including its worst quarterly loss in two years, helped by strong margins from its refining operations, China's second-largest. CNOOC, however, is likely to report its worst half-year earnings since late 2004, on weaker oil prices.

(* Dates subject to change)

Net profit forecasts (bln yuan) from Reuters poll of 5
analysts
COMPANY Q2 H1 %CHANGE QTR SHR PERFORMANCE FWD
P/E
PetroChina 31.0 -- 64 39.2 13.2
Sinopec 16.1 -- 623 19.2 9.4
CNOOC -- 11.4 -59 25 15.3
($1=6.833 Yuan)

(Editing by Chris Lewis & Ian Geoghegan)

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