KHOBAR - Saudi Arabia has approved a new law regulating the trade in petroleum products and said oil-based feedstock for industry can only be used at international prices.

"The Council of Ministers has authorised trade in petroleum products, with state-priced products to be strictly used as fuel by industrial firms and for means of transportation," a statement from the Saudi cabinet meeting said on Tuesday.

"The products sold at the global rates, shall, however, be used as feedstock. Meanwhile, the differential between locally set and global prices for exported products shall go to the State Treasury," it added.

Saudi Arabia's energy prices remain low despite the latest increase last year.

Such an increase is part of a broader economic reform to reduce the burden on government that heavily subsidises fuel.

The government has said it would continue its policy of reforming domestic energy prices and prices would gradually be linked to international benchmarks.

For instance, gas feedstock at competitive prices has turned Saudi Arabia into a major petrochemical producer.

The law, a Saudi analyst said would minimize subsidized consumption of petroleum products, by limiting subsidies and gradually removing them.

"Because of the absence of such a law, a ministerial committee had to tailor a rule for exporting cement, in which a formula was delineated so that cement factories pay to the government for the consumed fuel before getting the permission to export," he said.

The analyst who declined to be named said this was also intended to curb fuel smuggling.

The smuggling of fuel, including diesel, gasoline and other products, is frequent across the borders of some Gulf Arab states, where different levels of fuel subsidies create price gaps that smugglers can exploit.

(Reporting by Reem Shamseddine, editing by David Evans) ((Reem.Shamseddine@thomsonreuters.com; +966503335202; Reuters Messaging: reem.shamseddine.thomsonreuters.com@reuters.net))