Jitters on oil

Ahmed Kotb , Thursday 7 Oct 2021

Al-Ahram Weekly sounds out experts on rising international oil prices and their effects in Egypt

Jitters on oil
Global oil prices are at their highest in three years

The Ministry of Petroleum’s Automatic Fuel Pricing Committee (AFPC) is expected to hold its quarterly meeting on Thursday to determine the prices of petroleum products in Egypt until the end of 2021.

“There is currently instability in the global price of oil, driving up expectations of an increase in local fuel prices,” said oil and gas expert Ramadan Abul-Ela. International oil prices are an important factor determining the price of petroleum products in Egypt, in addition to the dollar exchange rate and local manufacturing costs.

The exchange rate is largely stable at less than LE16 to the dollar. However, there has been a significant increase in international oil prices during the past three months, and prices have now reached their highest level in about three years.

The current international price of Brent crude is hovering around $80 per barrel. The price of a barrel of oil in the state 2021-22 budget was estimated at $65 per barrel.

The difference will lead to a slight increase in fuel prices of no more than 10 per cent, Abul-Ela said. In deciding on the rise, this will be the fourth intervention of the AFPC on petrol prices after the adoption of the quarterly indexation system in October 2019.

It was decided during the last meeting of the AFPC in July to increase the prices of petrol at the pump by LE0.25 for the third quarter of 2021. The prices, in effect when Al-Ahram Weekly went to press, were LE6.75 per litre of gasoline 80, LE8 per litre of 92 gasoline, and LE9 per litre of gasoline 95. Prices of diesel stood at LE6.75 per litre, and the selling price of mazut fuel for the industrial sector at LE3,900 per ton.

International oil prices have increased amid supply disruptions and a recovery in global demand, pushing Brent crude prices last week to a nearly three-year high above $80 per barrel as many countries started to recover from the Covid-19 pandemic and tried to restore production levels back to normal, creating a heavy demand on fuel.

The record price of Brent crude was $147.5 a barrel in July 2008.

The Organisation of Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, ignored calls to boost production and said in a statement after the 21st OPEC and non-OPEC ministerial meeting concluded, that they would increase total monthly production by 400,000 barrels per day in November 2021, based on a previous agreement in July.

According to analysts, depleted warehouses after last winter and the longer-than-usual cold weather, along with reduced investments due to Covid-19 restrictions, have all contributed to the global crisis.

This has resulted in a struggle to obtain alternatives, such as gasoline, to the natural gas that is widely used for power generation and heating and has led to a crisis in Europe. European gas prices have risen nearly 500 per cent over the course of a year, now trading at a record high of more than $1,000 per 1,000 cubic metres.

Some experts believe this could be an opportunity for Egypt to increase its exports of liquefied natural gas (LNG) to Europe.

Medhat Youssef, former vice-president of the Egyptian Petroleum Authority, said the crisis would benefit Egypt and increase its export earnings, especially as it sells LNG shipments in spot transactions with immediate settlement of payments and not through futures contracts.

“The current advantage lies mainly with the increasing prices of natural gas as the winter season approaches,” Youssef said, explaining that this is also a season of excess gas in Egypt, which can lead to the doubling of Egyptian LNG export revenues.

The Ministry of Petroleum said it planned to increase production of natural gas to 7.2 billion cubic feet per day in the current fiscal year 2021-2022. Egypt’s production of natural gas was about 6,550 billion cubic feet per day in 2019-20.

Egypt has seen a boom in gas production in recent years, thanks to huge gas discoveries, the most important of which is the Zohr Field which has a production capacity of about 3.2 billion cubic feet per day.

Youssef stressed that natural gas prices in Egypt will not be affected by what is happening in Europe, because Egypt can meet local demand comfortably and export the excess.

According to the Ministry of Petroleum, the total consumption of natural gas in Egypt last year was about 45.2 million tons, compared to 45.6 million tons in 2019.

The electricity sector accounted for about 60.4 per cent of total gas production in 2020, with 23 per cent for the industrial sector and the rest for other sectors.

*A version of this article appears in print in the 7 October, 2021 edition of Al-Ahram Weekly

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