Overview: Will rise in global oil output benefit Egypt’s subsidies?



Thu, 06 Jul 2017 - 07:11 GMT


Thu, 06 Jul 2017 - 07:11 GMT

Oil platform-Erik Christensen via Wikimedia

Oil platform-Erik Christensen via Wikimedia

CAIRO – 6 July 2017: The six-month high oil production by the Organization of the Petroleum Exporting Countries (OPEC) in June has fueled questions on the impact of the rise in oil output on Egypt’s energy subsidies program.

The Egyptian government announced Thursday that it made the difficult decision to raise fuel prices. The price was raised 50 to 100 percent and the price of 80-octane gasoline soared from LE 1.60 ($0.08) to LE 3.65 per liter. In addition, the price for 92-octane increased from LE 3.50 to LE 5.00 per liter.

As the number of countries exempted from the OPEC deal to cut output increased, Libya and Nigeria have benefited from the exemption to boost their output. It is responsible for 50 percent of the output rise according to a July 3 Bloomberg survey.

The increased output might lead to an oversupply in the market, which could also influence international crude oil Brent prices that is expected to fall below $40 level according to July 3 CNBC Oil Survey.

Had this happened, the Egyptian government would have acquire a surplus in its allocations for petroleum subsidies. Egypt set the international Brent prices at $55 per barrel. Based on that calculation, the subsidies are put at LE 110 billion in fiscal year 2017/18.

The current Brent crude price is $49.4 per barrel.

Last fiscal year, the unexpected rise in Brent prices put the Egyptian Ministry of Petroleum in a tight situation. It had to request additional allocations from the Ministry of Finance in order to meet its needs.

In FY2016/17 budget, the fuel subsidies were LE 35 billion based on the calculations of $ 40 per barrel crude price. With that price swelling to above $50, the petroleum ministry exceeded its allocations, spending between LE 75-80 billion on the subsidies.

The deficit was further hit by the flotation of the Egyptian pound in November 2016, doubling the U.S. dollar exchange rate from LE 8.88 per dollar to a current average rate of LE 18.



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