China’s two oil giants, PetroChina and Sinopec, are expected to improve their profit margins this year due to increased oil production and frequent fuel price hikes while losses in their refining arms will contract as a result of the lower cost of crude oil, analysts said Thursday.

“Despite the weak performances of the two oil giants in the first quarter and last year’s hefty refining losses, they will see a major increase in oil output and domestic fuel price hikes, which will push up the profits of their upstream business for the whole year,” said Zhang Jing, an analyst at JYD Online Co, a Beijing-based bulk commodity consultant.

“The strong upstream gains will offset the losses of their refining division. The decline of international crude prices will continue this year, reducing crude cost. As a result, the performance of the two companies’ refining business will pick up this year,” Zhong Jian, chief analyst with Shanghai-based C1 Energy, told the Global Times Thursday.

International oil prices fell sharply Wednesday after data from the US Energy Information Administration revealed US crude stockpiles rose by 16.1 million barrels in the second half of March, their largest two-week gain since 2001.

Brent crude dropped $2.52, or 2.02 percent, to $122.34  Wednesday while US crude futures fell $2.54, or 2.44 percent, to $101.47, the lowest level in six weeks.

PetroChina, whose parent is China National Petroleum Corp, the country’s largest oil and gas group by output, posted a fourth-quarter net profit of 29.55 billion yuan ($4.69 billion), down from 40 billion yuan or 26 percent from the same period in 2010.

For the full year, the company posted a net profit of 132.96 billion yuan, compared to 139.99 billion yuan in 2010.

Sinopec, whose parent is China Petrochemical Corporation, the country’s largest refiner by capacity, posted a net profit of 71.7 billion yuan for 2011, after a weak fourth quarter net profit which fell by 30 percent reduced growth from 2010 to 1.4 percent.

The refining operations made a 37.6 billion yuan loss for the year.

Increases in the domestic prices of oil products usually fail to keep pace with strong rises in international crude prices under the current fuel pricing formula due to inflation concerns, leaving refiners saddled with mounting losses.

The National Development and Reform Commission said last week that the country will reform the pricing mechanism for oil products this year, with changes including reducing the price adjustment cycle and enhancing the transparency of the pricing mechanism.

By Song Shengxia