SHANGHAI, Nov 1, 2007 (AFP) - Officials with China's major oil refiner on Thursday welcomed a hike in domestic fuel prices, but warned a supply crunch that led to tense queues at petrol stations this week would remain.

China's economic planner announced Wednesday a rise in the prices of gasoline, diesel and aviation fuel by 500 yuan (67 dollars) per ton, or roughly 10 percent.

The hike, effective from Thursday, came after fuel shortages swept petrol stations as refiners withheld supplies because the prices they were allowed to charge lagged way behind record high global crude prices.

"It's certainly good for us," said Tang Weizhong, deputy board secretary with Sinopec Shanghai.

Sinopec and PetroChina are the two major players in the nation's fuel industry.

"We had terrible losses before the price hike... they should have done it long before," said Tang, whose comments were echoed by other Sinopec officials.

China's refiners have been losing money as they have to buy crude oil on the global market, but then can only onsell the fuel products at prices set by the government, which have been capped in an effort to keep inflation down.

The government last increased local fuel prices in May last year.

But international oil prices have jumped around 30 percent since then to above 90 dollars a barrel, prompting the refiners to cut back on supplies in recent days.

Sinopec's Tang insisted Thursday that, despite the latest hike, supplies would remain tight until a more market-based pricing system was put in place.

The price hike "is not going to solve the problem. How can they fix it with such a provisional cure? We will still be making oil products only for huge losses without reform of the pricing system," Tang said.

Inflation is a major concern for China's communist rulers for reasons other than economic, as soaring prices have in the past led to social tensions and unrest.

This week there have been reports of violence as long queues built up at service stations around the country.

In one incident reported on the People's Daily website, the ruling Communist Party's mouthpiece, a truck driver was killed while fighting with a queue jumper at a petrol station in central Henan province.