x Abu Dhabi, UAETuesday 25 July 2017

How can there be a fuel shortage?

Federal cap on petrol prices means retailers cannot raise prices at the pump in line with rising wholesale prices in other markets.

ABU DHABI // It is the question angry drivers in the northern Emirates have been asking for the past two weeks: in a country with vast oil reserves, how can there be a fuel shortage?

The answer may be financial.

A federal cap on petrol prices means retailers cannot raise prices at the pump in line with rising wholesale prices on the global markets where they buy much of their petrol. They therefore sustain large losses when they sell to UAE consumers at lower, regulated prices.

Emirates National Oil Company (Enoc) said in April that selling fuel at a regulated price cost it Dh1.5 billion last year, and it expects this year’s bill to be Dh2.7bn: a total cost of Dh4.2bn over two years, and a year-on-year increase of 80 per cent.

Saeed Khoory, the chief executive of Enoc, said in January last year his company lost money on petrol sales whenever global crude oil prices rose above $45 a barrel. Benchmark West Texas Intermediate is currently $100 a barrel.

Subsidising fuel has also taken its toll on Emarat, an Enoc competitor.

In Abu Dhabi, the domestic marketing arm of Abu Dhabi National Oil Company (Adnoc) obtains almost all the fuel it sells from its parent company’s own refineries – but even then it struggles to make a profit on petrol sales because of the price cap.

A committee of oil firms was set up in August last year to monitor petrol prices and try to reduce losses incurred by retailers.

Since then, however, retailers’ margins have been further squeezed by more international oil price rises.

In an effort to reduce pressure on retailers and to slow rapid consumption growth, the Government last year increased petrol prices twice.

Price rises are considered an effective tool to slow consumption rates that strain government budgets, increase emissions of greenhouse gases and reduce the volume of fuel available for export.

Despite the double rise, a total of up to 27 per cent, retailers say they are still losing money.

However, analysts say a further price rise is unlikely in the near future. The two increases last year angered drivers and car-dependent businesses such as taxi operators and delivery companies.