Business | Oil & Gas
Oil hike squeezes fuel retailers
High international crude oil prices will set the tone for the UAE's economic growth in 2008 since, as a top world producer, it is going to reap windfall gains from oil exports, local economists say.
- By Himendra Mohan Kumar, Staff Reporter
- Published: 00:19 January 26, 2008
Abu Dhabi: High international crude oil prices will set the tone for the UAE's economic growth in 2008 since, as a top world producer, it is going to reap windfall gains from oil exports, local economists say.
However, despite the windfall gains, the majority of fuel retailers in the country are suffering from huge losses as the government has kept gasoline prices unchanged for more than two years.
Oil industry sources have told Gulf News that domestic oil retailers are hoping that the federal government will allow an increase in the state-set prices of gasoline, which have not changed since September 1, 2005, when prices were raised by Dh1.50 a gallon. However, prices of the main industrial fuel - diesel - have fluctuated as per market conditions.
The Dubai-based oil retailers - Emirates National Oil Company (Enoc), Emirates Petroleum Products Company (Eppco) and Emarat - are more susceptible to spikes in crude prices since they buy gasoline from several sources.
In contrast, Abu Dhabi-based Adnoc Distribution sells fuels sourced entirely from the Abu Dhabi National Oil Company (Adnoc), the UAE's main crude producer and refiner.
Economists feel that since the government wants to reduce inflation, it wouldn't allow an increase in domestic gasoline prices despite likely requests for an increase by some oil retailers.
A spokesman for Enoc and Eppco said they are losing more than Dh5.50 on every gallon of gasoline they sell, as retailers have to buy the fuel at market rates. "We haven't yet approached anyone seeking an increase in gasoline prices. The Ministry is aware of the situation. We are keeping our fingers crossed. It's for them to decide," he said.
An Adnoc official said that till now, there has been no discussion in the company on the need for Adnoc Distribution to approach the Ministry of Energy seeking a hike in gasoline prices.
Consumption
He said it's possible that because the UAE's own oil consumption is a fraction compared to the crude it exports and crude prices in the international market currently are at record highs, the government does not want to touch domestic gasoline prices, at least for the time being.
The UAE on average pumps around 2.6 million barrels of oil per day.
Abu Dhabi's Murban, a popular, light and sweet variety of crude by Middle East standards, was averaging $90.60 per barrel in December, compared to the sub-$90 per barrel average price of light crude futures sold on the New York Mercantile Exchange for delivery in the same month.
According to an estimate by McKinsey & Company, Abu Dhabi, which produces more than 90 per cent of the UAE's oil, is likely to accumulate an investible surplus of $800 billion in the 2005-20 period due to massive cash flows from oil revenues.
"Higher oil prices mean more economic growth, more new projects and a higher rate of growth in the non-oil sector," said Mohammad Al Asoomi, a Dubai-based economist.
"The government can invest the surplus in avenues to generate more income. Greater diversification of the economy can be achieved by higher investments in manufacturing, agriculture, services, electricity, water, transportation and through building infrastructure in remote areas," said Mohammad Amerah, an Abu Dhabi-based economist.
"I feel gasoline prices will remain the same, though diesel and natural gas prices may go up a bit during the year," said Al Asoomi.
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