Oil report

UPDATE 1-China raises ex-refinery jet fuel prices

(Adds background, analyst comment)

BEIJING, May 19 (Reuters) - China raised ex-refinery prices for aviation fuel by 460 yuan ($67.40) a tonne on Tuesday to track rising global markets, industry sources said, fanning speculation of a rise in gasoline and diesel prices.

The roughly 10 percent increase will help lift refining margins of state refiner Sinopec Corp 0386.HK and PetroChina 0857.HK, but will raise costs for airlines.

“Jet fuel supply has been very tight recently as its price was lower than that of diesel,” a source at the China National Aviation Fuel Holding (CNAF), the country’s dominant aviation fuel distributor, told Reuters.

“The rise will give refiners more incentive to increase jet fuel production and ease pressure on jet fuel supply.”

Ex-refinery prices are rates refiners charge CNAF.

Analysts said the price rise on jet fuel, which makes up only 4 percent of China’s total fuel consumption, could be Beijing testing the market before moving on to gasoline and diesel.

“I think the jet fuel price rise is indicating that the pressures for fuel price rises are quite heavy. But the government might be hesitating due to concerns over the impact on domestic consumption,” said Qiu Xiaofeng, an analyst at China Merchant Securities.

China cancelled a price rise for gasoline and diesel earlier in May estimated by industry sources at around 9 percent, fearful of hurting the vulnerable rural and transportation sector already hit by a slowing economy.

Reporting by Eadie Chen, Jim Bai and Chen Aizhu; Editing by Nick Macfie