BOSTON, MA, October 18, 2017
Saudi Price Hikes Cut Fuel Demand
Transportation fuel demand in Saudi Arabia will decline again in 2018, according to ESAI Energy’s newly published Middle East Watch Products. The report explains that the government is expected to raise the retail price of gasoline and diesel as soon as next month. The Kingdom is pushing ahead with its plan to phase out fuel subsidies as part of a broader effort to shore up public finances and curb fuel waste. In response to the price hikes, consumers will rein in their gasoline and diesel consumption next year.
The reforms would raise the price of gasoline from $0.20 per liter to $0.36 per liter and the price of diesel from $0.12 per liter to $0.24 per liter. A doubling of pump prices will cause Saudi diesel demand to shrink in 2018 for the third straight year, falling by 40,000 b/d to 550,000 b/d. The gasoline price increase, meanwhile, will cause gasoline consumption to fall by about 20,000 b/d, to 580,000 b/d.
“The Saudi government wants to bring fuel prices to parity with international market prices by 2020,” explains ESAI Energy Analyst Amrit Naresh. “The November reforms will bring gasoline and diesel prices to just 70 percent and 50 percent of their international benchmark prices, respectively, so we expect further price hikes in the coming years.” The bearish demand outlook in the Middle East is not limited to Saudi Arabia, Mr. Naresh said. “In all Gulf Cooperation Council countries, a new value-added tax regime will be implemented in 2018, setting the stage for further tax increases in the future. The increase in consumer prices should dampen the growth of fuel demand across the region.”
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