Oil group weighs petrol price increase recommendation

A committee of UAE oil companies has been set up to watch petrol prices as part of an effort to reduce losses incurred by retailers.

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A committee of UAE oil companies has been set up to monitor petrol prices as part of an effort to reduce losses incurred by retailers. An executive at one of the companies on the committee said the group would meet next month and was considering recommending a new price increase to the Federal Government.

The price of petrol has already been increased twice this year but retailers are still not making a profit. The executive, who declined to be named, stressed no new price rises have been authorised by the Government. Federally regulated prices at the pump have been allowed to rise this year for the first time since 2005. The Government says it will gradually "liberalise" prices to reduce financial losses at the country's fuel retailers and to slow rapid consumption growth.

The lowest fuel grade available, E-Plus, has increased by almost 28 per cent since April and now costs Dh1.61 (43.8 US cents) a litre, just 22 fils below yesterday's international spot market price. The executive said the committee met every other month and comprised representatives from the country's three petrol sellers - Abu Dhabi National Oil Company (ADNOC), Emarat and Emirates National Oil Company (ENOC), which also sells through its affiliate, the Emirates Petroleum Products Company.

The committee will issue its next report in mid-September, he said. Any of its recommendations must be approved by the Government. ENOC and Emarat buy much of their petrol on the international market and sustain large losses when they sell to UAE consumers at lower, regulated prices. ADNOC's domestic marketing arm sources almost all of the fuel from its parent company's refineries but still finds it difficult to make a profit on petrol sales.

The committee monitors international prices and the level of losses sustained by retailers. All of the retailers have continued to run losses even after this year's price increases, the executive said. "I'm 100 per cent certain that everybody is still losing money," he said. His account was corroborated by a senior official in the Federal Government, who said the committee monitors prices month by month and acts as an intermediary between the companies and Government.

The two price increases this year have angered drivers and car-dependent businesses such as taxi operators and delivery companies. Price rises are considered an effective method of slowing rapid consumption growth of the type that has strained government budgets, contributed to the country's emissions of greenhouse gases and reduced the volume of fuels available for export. The price increases, together with slower economic growth, have already cut the UAE's petrol consumption growth by half, said Thaddeus Malesa, a Gulf oil analyst based in Dubai at the consultancy PFC Energy.

"We're definitely seeing a slower growth trajectory," Mr Malesa said. "We are seeing 6.5 per cent to 7 per cent growth this year, versus 13.3 per cent last year." But the Government has said recurrent losses at fuel retailers remains the primary reason for allowing price increases. Retailers came under extreme pressure in 2008 as international petrol prices rose to record levels. They began to experience large losses again earlier this year as oil prices advanced above $70 a barrel.

Saeed Khoory, the chief executive of ENOC, has been an ardent public supporter of a price rise, saying in January his company lost money on petrol sales whenever global crude oil prices rose above $45 a barrel. ADNOC is much more resilient to international price movements but experiences a large opportunity cost when it sells to the domestic market rather than exports. The company also imports fuel directly. Yesterday it gave notice that it was looking to import 180,000 tonnes - about 1.53 million barrels - of petrol to cover domestic consumption when it takes its main refinery off-line for maintenance in October, according to Reuters.

Petrol in Singapore, Asia's major trading centre, sold at $79.45 a barrel yesterday, which works out to about Dh1.83 a litre. Retailers would have to sell it at a higher price to also cover the costs of transporting fuel and operating filling stations. halmohammed@admedia.ae cstanton@thenational.ae