Fuel move boosts Chinese shares

Traders believe China may be capable of moderating its appetite for oil

Chinese shares have closed 3% higher after the government raised energy prices in an effort to cool the nation's rising energy consumption.

The Shanghai Composite Index initially fell 2% in early trade but bounced back to close 3% up at 2.917.33.

China increased retail and wholesale prices for fuel and electricity by as much as 18% on Thursday, pushing global oil prices down by almost $5 a barrel.

But analysts fear the move may fuel inflation which is near a 12-year high.

The main beneficiaries of Beijing's energy price hike are the nation's oil refiners.

As energy prices rise, refiners have suffered deep losses as they buy oil on the international markets but sell to consumers at a discount set by the Chinese government.

The move will not only close the gap between state-set domestic prices and world oil markets but somewhat curb China's demand for oil, analysts said.

China's drivers give their views on the price rise In pictures

China accounts for around 40% of the increase in world oil consumption, as its red-hot economy continues to expand at a furious pace.

"It is going to eat into demand. I'm pretty sure of that," said Dave Ernsberger, Asia director of global energy for research firm Platts.

State price controls in the world's second largest oil consumer after the US have also been blamed for making global markets more volatile.

But there are also concerns that higher fuel prices may fuel inflation and spark civil unrest.

Annual consumer price inflation hit 8.5% in April, while food costs rose 22%.

In a move to appease its citizens, the government said it had set aside $2.9bn in subsidies to help those most affected by the price rises.

China's action came just two days before an international oil summit in Saudi Arabia to discuss rising energy costs.