Cairo resident Mustafa usually fills up with 30 litres of fuel whenever the tank of his car is empty. He had got used to paying a certain sum of money, but earlier this week the petrol station attendant gave him back more change than usual, explaining that fuel prices had gone down.

The prices of a litre of octane 95, octane 92, and octane 80 fuel went down by LE0.25 to reach LE8.5, LE7.5 and LE6.25, respectively. The natural gas used for vehicles and diesel prices were kept without change at LE3.5 per cubic metre of gas and LE6.75 per litre of diesel, however. The price of mazut fuel for industrial use was lowered by LE350 per ton to LE3,900.

The price reductions came after a quarterly review under the fuel indexation system adopted by the Ministry of Petroleum in July 2019. According to the system, the prices of petroleum products can either remain stable, increase, or decrease within a 10 per cent range on a quarterly basis, based on factors including global oil prices and the exchange rate.

The ministry’s Automatic Fuel Pricing Committee thus announced cuts to the prices of petrol, diesel and mazut products effective as of last Saturday that will remain valid for three months.

Expectations had been high that fuel prices would see a more significant cut in prices due to the steep fall in global oil prices and the stronger Egyptian pound against the US dollar. Brent crude was trading at lows of $20 a barrel earlier this month.

The committee said in a statement that the decision to lower prices was taken in the light of the unprecedented circumstances experienced by the global oil markets, the exchange rate, the costs of transportation, operation, and production, and the global and local economic repercussions of the coronavirus pandemic.

Since it is not expected that the current sharp decline in global oil prices will continue, according to the committee statement, it was decided to spare part of the savings generated by the drop to meet the expected rise in oil prices in the near future and to cope with the increasing burdens of fighting the coronavirus.

Losing about two-thirds of its market price as a result of the coronavirus outbreak since the beginning of the year, international oil benchmark Brent crude is currently priced at around $31 per barrel, down from about $65 before the crisis.

The Organisation of the Petroleum Exporting Countries and its allies, including Russia and Mexico, together known as OPEC+, announced on Sunday that it would slash production by 9.7 million barrels a day for May and June, followed by a relaxation to 7.7 million barrels per day in the second half of 2020 and 5.8 million between January and April 2021.

The major oil producers decided to slash production after four days of negotiations put an end to an oil-price dispute between Russia and Saudi Arabia, as they attempted to stabilise a market that has been upended by the coronavirus. The cut represents around 10 per cent of global supply.

“Even before the meetings occurred, our quantitative models signaled that no nominal quantum of orchestrated output cuts was likely to have been sufficient to offset the unprecedented drop in demand that we have been cataloguing in recent weeks,” said Ehsan Khoman, head of MENA Research and Strategy at MUFG Bank.

He added that the best-case scenario was for the deal to slow the pace of the stock building of oil products to a level that would delay storage tanks from topping out and avoid some of the shut-ins that could follow.

He explained that this was the oil industry’s equivalent to the lockdowns in response to the spread of the Covid-19 coronavirus. “We maintain our view that the unprecedented oil price collapse is not yet over,” he said.

According to MUFG Bank models, even factoring in the 9.7 million barrels a day of OPEC+ cuts, updated supply-demand balances would still require an additional three to four million barrels per day of production shut-ins in the second quarter of 2020.

Khoman believes that a sharp sell-off in oil prices is to be expected in the coming weeks, but he expects a risk that the rebound in prices will be much sharper than the current oil-price rally, to bounce back to $36 per barrel and $46 per barrel by the end of the third and fourth quarters of the year, respectively.

Fuel prices in Egypt have been raised five times since 2014, when the government decided to gradually lift fuel subsidies and opt instead for the fuel indexation system. Egypt’s Finance Minister Mohamed Maait said earlier this month that Egypt’s draft 2020-2021 budget was based on an oil price of $61 per barrel, down from $68 in the current budget.

*A version of this article appears in print in the  16 April, 2020 edition of Al-Ahram Weekly