China Petroleum & Chemical Corp. (SNP), or Sinopec, Asia 's largest oil refiner by capacity, said Thursday first-quarter net profit rose 25% from a year earlier because of higher oil prices and increasing output, although its refining business recorded a loss due to rising fuel costs.

Net profit for the three months ended March 31 was 20.64 billion Chinese yuan ($3.2 billion), up from CNY16.49 billion a year earlier, based on international accounting standards.

Its first-quarter net profit was CNY20.50 billion under Chinese accounting standards, up 24% from CNY16.47 billion a year earlier.

Revenue rose 34% to CNY588.8 billion from CNY438.6 billion.

Sinopec joined other major Chinese oil producers in reporting strong first-quarter results due to a stronger contribution from their oil production business amid rising crude oil prices, although China 's oil demand growth is set to slow this year from 2010.

China , the second-biggest oil consumer after the U.S. , is expected to contribute strongly to global oil demand growth this year, even though the government is starting to tap the brakes on the economy in an effort to tame inflation.

The International Energy Agency expects Chinese oil demand to grow this year, from 12.2% calculated in 2010. That reflects a slowing economy, fewer of the gasoil shortages that were widespread last year and better use of more energy-efficient equipment, it said.

In response to strong economy growth, Sinopec processed 54.3 million metric tons of crude oil in the January-March period, up 7.4% from 50.5 million tons a year earlier. It sold 39.6 million tons of fuel during the quarter, up 14.7% from 34.6 million tons in 2010.

Sinopec's crude oil output fell 5.8% to 10.98 million tons in the first quarter, while its natural gas production jumped 29.8% to 3.63 billion cubic meters.

The average selling price of its oil jumped 19.4% to CNY4,007.03/ton in the first quarter from CNY3,356.47 a ton a year earlier.

However, Sinopec's refining operation recorded an operating loss of CNY576 million as the price of benchmark Brent crude oil jumped nearly 30% in the first quarter.

High crude costs have squeezed the margins of China 's refiners as the domestic fuel pricing system prevents them from fully passing on the higher costs to consumers.

Sinopec and PetroChina Co. (PTR) are often under pressure from Beijing not to make any price adjustments in order to keep a lid on inflation. Earlier this month, China raised domestic ex-factory gasoline, diesel and jet-fuel prices by around 5%. The increase is the fourth in fuel prices, which are controlled by the central government in China , since October.

PetroChina, the largest listed Chinese oil firm by capacity, said Wednesday its refining business posted an operating loss of CNY6.13 billion because crude oil costs exceeded domestic fuel prices, despite a rise of more than 16% in crude processing volume.

Analysts expect China 's refiners to face a challenging operating environment in their refining business in the second quarter as unrest in the Middle East and North Africa drive up fuel prices.

"While a further material rise in oil prices could produce further refining losses during second quarter of this year, we expect a return to refining profit in the second half," UBS analyst Peter Gastreich said.

"In any case, a further spike in oil prices is not within our forecast, and we believe that domestic refined product prices will be raised again next month," he said.

Seventeen analysts polled by Thomson Reuters said they expected Sinopec's 2011 net profit to rise slightly to an average of CNY75.8 billion from CNY71.8 billion last year.

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