The striking of Saudi oil facilities by drone and missile attacks on 14 September has led to a disruption in the international oil market, affecting about five per cent of the world’s daily crude oil supply and almost halving Saudi Arabia’s total production of nearly six million barrels per day.
According to figures from OPEC, the group of major oil-producing countries, Saudi oil production is estimated at 9.8 million barrels per day, about 10 per cent of the total global supply of 100 million barrels.
The attack on Abiqaiq, Saudi Arabia’s largest oil-processing centre, drove international oil prices up by about 20 per cent the day following the attack. The global benchmark, Brent crude, went from $60 per barrel to above $71, the biggest one-day rise in 30 years with speculation it could go higher.
However, Saudi Arabia’s announcement that it would rely on reserves to keep its oil exports stable and its faster-than-expected restoration of the oil production lost have led oil prices down again to stabilise at around $64 per barrel this week.
Last July, Egypt increased fuel prices in the fifth and last round of the subsidy cuts that were part of an economic reform package agreed with the International Monetary Fund (IMF) to receive a $12 billion loan.
The government’s decision to increase the prices in July also included a decree by which fuel prices would be reviewed quarterly based on Brent crude rates and the US dollar exchange rate. The prices could go up or down by 10 per cent compared to current prices, according to the decree.
The first round of the review of the prices is expected next week, and it will be done by a committee formed by the Ministry of Petroleum and Mineral Resources. Brent crude oil is valued at $68 per barrel in Egypt’s budget for 2019-20, and according to the Ministry of Finance, every increase of $1 per barrel above this rate will cost the country about LE2.3 billion.
However, experts predict that there will be no impact from the Saudi oil facility attacks on the coming review of fuel prices in the Egyptian market.
Three factors currently affect fuel pricing. According to Hossam Arafat, head of the petroleum products division at the Federation of Egyptian Chambers of Commerce, these include the “price of Brent crude oil, the exchange rate of the Egyptian pound against the US dollar, and direct and indirect costs including taxes”, he said.
These factors would be carefully considered to set oil prices for the next three months in the local market, he added.
Arafat stated that the quick restoration of stability to international oil prices shortly after the attack on the Saudi oil facility had helped avoid a blow to Egypt’s budget and an unavoidable increase in fuel prices. “There might be changes, though, to the oil prices depending on international circumstances in the near future,” he said.
With Brent crude oil hovering around $65, Arafat said, “we are still in a safe position as long as it does not go above the $68 mark” set by the budget. He also said that the Egyptian pound had been performing well against the dollar, which had helped stabilise the pricing system for petroleum products.
The last few months have seen the dollar fall against the pound, reaching LE16.35 to the dollar on Tuesday. The dollar has lost about seven per cent of its value against the pound since the beginning of 2019.
Foreign currency inflows, mainly from tourism, have improved the trade balance and foreign investment in treasury bonds, and they have increased Egypt’s foreign exchange reserves. These factors have all contributed to the appreciation of the pound against the dollar.
Egypt’s foreign reserves reached an all-time high of $44.9 billion at the end of July, coinciding with the country’s receiving a final $2 billion tranche of the loan from the IMF.
According to the Ministry of Petroleum and Mineral Resources, Egypt consumes about 25 billion litres annually of petrol and diesel and imports more than 40 per cent of that amount.
*A version of this article appears in print in the 26 September, 2019 edition of Al-Ahram Weekly.