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Wed 8 Jun 2011 02:14 PM

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Petrol shortages as $100 oil crimps retailers

State-owned ENOC suffering as oil cost rises and government-set petrol prices stay static

Petrol shortages as $100 oil crimps retailers
Emarat petrol station
Petrol shortages as $100 oil crimps retailers
Petrol shortages as $100 oil crimps retailers

Fuel shortages that have left petrol pumps dry at stations across the UAE are likely the result of $100 oil squeezing state-owned retailers, analysts said Wednesday.

Stations belonging to the Dubai-owned Emirates National Oil Company (ENOC) and its arm Emirates Petroleum Products Company (EPPCO) have seen six days of fuel shortages, which the company has blamed on filling station upgrades.

The shortage – the third in the last 10 months - left drivers in Dubai and neighbouring emirates scrambling for fuel at rival petrol provider Emarat's stations.

But analysts said the shortfall was likely a reflection of the increasing gap between fuel prices and the heavily subsidised cost at the pump.

“It is more likely due to a shortage of funds,” said Samuel Ciszuk, energy analyst at IHS Global Insight. “This is quite a common problem in a system where the retail price is fixed and where the main entity is an importer of fuel or feedstock. What normally happens in such a system is that you receive cash injections from time to time to fill that gap.”

The UAE, the world's third largest exporter of crude oil, has long subsidised fuel prices in an effort to cut living costs for residents, a move that costs the state millions of dollars a year.

Enoc and rival state-owned retailer Emarat have suffered from rising oil prices because they buy fuel at market prices and sell it at government-set rates.

In April, ENOC said it expected to spend AED2.7bn ($735m) this year on providing fuel subsidies. The figure represents a 44 percent rise from the AED1.5bn it spent in 2010.

Emarat blamed an April petrol shortage on logistical problems, though industry sources said a supplier, trading house Vitol, had refused to discharge a fuel cargo at port because Emarat had delayed a payment.

In January, chairman Obaid Humaid Al Tayer said the company was restructuring and needed bank loans because it must sell gasoline at below-market prices

The UAE has hiked gasoline prices twice since April 2010 – though fuel remains well below market prices – but a third increase was scrapped in the wake of widespread social unrest in parts of the Middle East, Ciszuk said.

“If we go back a few months there was increasing talk of raising prices quite significantly during this year, but then of course came the Arab Spring and suddenly nobody wants to undertake any kind of price reform, for political reasons, because the political cost is too high,” he said.

“The retailers hadn’t budgeted for the crude price increase, but they had budgeted for their own retail prices going up.”

John Sfakianakis, chief economist at Banque Saudi Fransi, said fuel retailers may find it untenable to continue selling fuel if the price shortfall is not addressed.

“It appears that the retailers don’t find it commercially viable to keep running, despite the fact that we have seen price increases by around 30 percent in the last year at the retail level.”

Spokespersons for Emarat and Enoc were not available to comment when approached by Arabian Business.

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Red Snappa 8 years ago

There is no way you can run a realistic economy with fixed end user fuel prices and floating market cost prices. The government might as well completely fully nationalise the petrol stations and not expect them to run like a profit making business.

A complete transition to self service might help with overheads or you pay 5 Dirhams extra for attendant service.

In most other parts of the world you pay the full cost of petrol as well as tax, so you have at least increase prices again in UAE along with rocketing food prices that is the true cost of living, $100 a barrel is not going to go away anytime soon. It may not seem like it but if you put the prices up in UAE the populace would still be lucky; the average cost of filling a medium sized saloon car in the UK for example is between AED 375 and 400. Fill a chunky 4WD and you're looking at AED 600! It's all relative. The true cost of living and doing business is what it is.

Raj 8 years ago

So looks like this is all a scene to announce the next price hike! Ok so when is it folks!

Amanda 8 years ago

What below the market prices. The UAE is the most expansive with the petrol in the middle east.
Saudi Arabia, Qatar, Oman etc are cheaper.
It will collapse same as the real estate. Think before you will increase the price again.
The people can not live in the UAE anymore. To much exspansive and salaries to low.

Chris 8 years ago

The price of petrol should be at least doubled.
I find it unbelievable that people in the UK are paying almost 8 dhs per litre and here people are paying less than 2 dhs.
And given that people here earn the same as people in the UK (often more) and without taxes, they should be able to withstand any increase in prices.

This will also have the added benefit of improving the environment and will reduce traffic congestion as people will drive less due to higher prices.

Ed 8 years ago

The reasons of the fuel shortage mentioned in this article is the closest what everyone knows, but what is not told.

Fuel availability is the cornerstone of economic performance and growth of a country. The effects of the financial crisis faced in the country are now starting to affect the absolute basics which nobody would expect in this country. Transparency in both the problem and what actions are taken is probably now the wisest next step of the authorities!

Original Joe 8 years ago

This situation is stupid! I passed an Adnoc in Sharjah which must have had more than 20 cars waiting for petrol. The queue was out into the main road. I passed an Eppco and Enoc in Sharjah which had cones out so cars knew not even to try to pull up because there was no petrol available. In a normal company, people would lose their jobs over this stupidity.

John 8 years ago

BTW Chris, you think the price should be doubled? What, are the rest of us just stupid and youre the only one with sense. No one in their right mind would say something so rediculous, unless of course, you are involved in the increase somehow....duh!

John 8 years ago

Don't let them fool you. Propoganda strikes again. Seems to me they are just preparing to raise the price of gas again but are feeling guilty because they just doubled it over the past 5 years already! Same old story around the world. Its always about greed. Get ready for another huge increase.

Amanda 8 years ago

I think you Chris you have a well payed job. You get more than you get in England. So you comment is not right. Think of the people they do not get well payed as you.

Jindal 8 years ago

I think the Government should intervene and takeover these companies and fire the decision makers who have taken the public as hostages to demand and increase in petrol prices. This is no way to ask for a price rise. They should publish their accounts and inform the real need to make up their losses(if they are really losing) and ask for an increase. They have no right to strike like this and disrupt the life of the normal public who are at risk of their life and jobs if this situation is not controlled. I hope the Govt cancels their licenses and takes over the show. UAE GOvt always does a much better job in public service areas.