Brent price decrease drives down subsidies in FY 2014/2015 budget to approximately EGP 55bn

Mohamed Adel
3 Min Read
Global price of fuel oil reached EGP 2,448 per tonne and EGP 2,300 on the local market, which is quite close to global prices, an expert said. (Photo Courtesy of RWE)
Global price of fuel oil reached EGP 2,448 per tonne and EGP 2,300 on the local market, which is quite close to global prices, an expert said. (Photo Courtesy of RWE)
Global price of fuel oil reached EGP 2,448 per tonne and EGP 2,300 on the local market, which is quite close to global prices, an expert said.
(Photo Courtesy of RWE)

The Organisation of Petroleum Exporting Countries (OPEC) has decided not to lower crude oil production shares to avoid a price collapse for crude following Saudi Arabia’s decision not to lower several considerations.

Brent Crude prices stood at $80 per barrel before their last meeting, while one barrel of crude oil is now equivalent to $59.3, its lowest rate since 2009.

Petroleum expert Medhat Youssef expects the subsidies borne by the government to measure at approximately EGP 50bn by the end of this year, as opposed to the EGP 100bn allocated in the budget as a result of the collapse of crude oil prices globally.

He pointed out that subsidy allocations were calculated at approximately $105 per barrel of crude, but the price of Brent fell to $59.3 per barrel.

Tarek El Molla, Chairman of the Egyptian General Petroleum Corporation (EGPC) said in previous press statements that Egypt is considered a crude oil and petroleum product importing country and not an exporting country. He added that therefore, a decline in Brent Crude prices is in Egypt’s interests.

El Molla emphasised that the continuing decline in the price of Brent will positively impact the Egyptian economy as a result of lower fuel prices, which represent a significant burden on the state budget.

Youssef said that the price of one tonne of fuel oil fell dramatically and influences electricity production in the country. It could form a difficult decision for Egyptian officials as a result of natural gas being the ideal alternative, with better operational efficiency than fuel oil.

He explained that the global price of fuel oil reached EGP 2,448 per tonne and EGP 2,300 on the local market, which is quite close to global prices.

Youssef said that the problem facing officials in the upcoming stage will be in global fuel oil prices reaching an equivalent of $8.5 per million BTUs only. The price of natural gas, the better alternative than fuel oil, is between $17-18 per million BTUs and for this reason officials are facing the difficult decision of choosing between lower quality and efficiency in light of a significant and growing price difference.

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