BRUISED by Japan's disaster, investors around the world now have to confront uncertainty on the other side of the world as military air strikes led by NATO against Libya seem unlikely to end any time soon.

But one thing's for sure: Oil prices have risen and could go higher.

The OPEC basket price, an average price of seven crude oils compiled by the Organization of the Petroleum Exporting Countries, rose from US$89.89 a barrel at the end of last year to US$110.37 on Monday. The increase reflected unrest in the Arab world, from Tunisia to Libya and Syria.

The United States benchmark West Texas Intermediate futures have been hovering around US$108 a barrel this week.

If instability continues to spill over, for example, to Libya's neighbor Algeria, an OPEC member with a production capacity of 1.9 million barrels per day, the price of oil could further shoot up to US$160 by the end of this year, according to a report by China International Capital Corp.

The situation in Saudi Arabia, the world's second-largest oil producer, is equally uncertain after street protests broke out in some parts of the country.

So how will the somewhat grim oil price prospects affect stocks in China, the world's second-biggest oil importer?

Analysts said higher world prices import inflation to the country, which is just what policy makers don't need as they grapple to rein in ever-rising consumer prices.

Oil-fed inflation will raise production costs and squeeze margins for many listed companies.

HSBC said an oil price increase to US$120 a barrel would add 1 percentage point to China's inflation rate.

China imported 239.3 million tons of crude last year, accounting for 55 percent of national oil consumption. Although Libya contributed only 3.07 percent of that amount, trouble in that north African country could spread to producers such as Saudi Arabia, Iran and Oman - all vital suppliers to China.

China has to pay at least 100 billion yuan (US$15.25 billion) more for every 10 percent rise in the price of crude, according to Zhang Monan, a researcher at the State Information Center. The price of imported oil in February jumped almost 21 percent from a year earlier, China's customs said.

Ominous signs of imported inflation have already emerged.

China's Producer Price Index, a major measure of inflation at the wholesale level, rose 7.2 percent in February from a year earlier to its highest since October 2008.

Lin Yifu, chief economist and senior vice president of the World Bank, has warned that rising oil prices may slow growth of the world's second-largest economy.

For oil refiners like Sinopec, higher crude prices are a squeeze because the government caps how much can be charged at the gasoline pump.

Sinopec, Asia's biggest oil refiner, relies on foreign supplies for more than 70 percent of its oil.

The company can break even if oil price swings between US$88 and US$90 a barrel, the National Business Daily cited company officials as saying. Refinery costs will rise by at least 50 yuan a ton for every US$1 increase in crude prices, and profits could be reduced to zero if that price surpasses US$120, the newspaper said.

Although Sinopec's 2010 net profit rose 13.7 percent to 71.8 billion yuan, profit earned from refining slumped 42 percent to 15.86 billion yuan, it said in its earnings report released on March 28.

Sinopec's shares this year have risen 8.06 percent, to 8.71 yuan yesterday.

Haitong Securities predicted every US$1 increase in the oil price will add only 0.008 yuan to earnings per share for Sinopec, compared with 0.012 yuan for PetroChina, China's largest oil producer.

PetroChina is considered by many analysts to be the big winner because it can self supply 80 percent of oil for its production.

The firm posted an 81 percent jump in fourth-quarter net profit to 39.9 billion yuan, while full-year net soared 35 percent to 140 billion yuan, or 0.76 yuan a share.

But like Sinopec, annual profit from downstream refining and chemicals dived 55 percent to 7.8 billion yuan.

PetroChina shares this year climbed 8.3 percent to 11.22 yuan yesterday.

One stock sector that seems to be benefitting from higher oil prices is the energy equipment industry. Manufacturers such as China Oilfield Services Ltd, Offshore Oil Engineering Co and Kingdream Plc may see a rise in their share prices, BOC International (China) Ltd said.

Petrochemical product makers such as Xinjiang Dushanzi Tianli High & New Tech Co and Yantai Wanhua Polyurethanes Co also stand to gain from the higher prices they can charge for their products, Haitong added.

China Oilfield shares have lost 13.9 percent this year to 21.99 yuan yesterday, while those of Dushanzi Tianli hiked 39.5 percent to 13 yuan.

With new nuclear plant approvals on hold in China following the disaster at Japan's Fukushima Dai-ichi power station and with crude prices rising, the demand for energy will turn to coal in the short term, some analysts are predicting. Coal prices, as a result of that demand and closures of some flood-ridden mines in Australia, have been rising worldwide.

That makes companies such as Yanzhou Coal Mining Co, Zhengzhou Coal Mining Machinery Group Co, Beijing Haohua Energy Resource Co and Shanxi Lanhua Sci-Tech Venture Co attractive stock opportunities, according to Hong Yuan Securities and Huatai United Securities.

Yanzhou Coal's share price has rallied 30.7 percent to 37.11 yuan this year.

Clean energy and energy-saving equipment companies may also shine in the changed environment.

The two brokerages advised investors to pay attention to clean energy firms, including Sichuan Chuantou Energy Co, Shanghai Aerospace Automobile Electro Mechanical Co and Xiangtan Electric Manufacturing Co, because solar and wind power industries are seen as key in China's new five-year plan.

Then there is also agriculture. Higher oil price push up the costs of chemical fertilizers and pesticides, both made from petroleum.

Huatai United has singled out Sichuan New Hope Agribusiness Co, Hubei Xingfa Chemicals Group Co and Yunnan Yuntianhua Co as stocks to watch, while CICC sees opportunities for Shanxi Sanwei Group Co, Hubei Yihua Chemical Industry Co and Liuzhou Chemical Industry Co.

New Hope Agribusiness shares have lost 11.7 percent to 18.5 yuan so far this year.