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
By Elizabeth Broomhall
Wed 08 Jun 2011 02:14 PM

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.

For all the latest transport news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.

Subscribe to our Newsletter

Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.