Brent crude prices dropped 6% to $60.8/barrel in Wednesday’s trading, the lowest since early February, after the American Petroleum Institute (API) reported an unexpected build-up in inventories.
Prices have also been hit by concerns over demand as Europe goes into fresh lockdowns. Oil has corrected by about 13% since hitting a 22-month-high of $69.6/barrel on 11 March.
Oil prices surged on account of rising demand from Asia and OPEC+ deciding not to raise production.
The drop in oil prices should tentatively come as a relief to policy makers in Egypt given the positive impacts on the fuel subsidy bill which is budgeted at EGP 53bn ($3.4bn) for fiscal year (FY) 2020/21.
The price of diesel, which is aligned with crude, has also dropped by 12% to $483/tonne during the last two weeks.
Naeem Research said that, as per its calculations, no changes are required to the retail price, which is expected to be reviewed by the end of March.
For Qalaa Holdings (CCAP), the Diesel-HSFO spread at the Egyptian Refining Company (ERC) has been sustained at $15-$16/barrel versus an average of $9.2/barrel in the fourth quarter (Q4) of 2020, despite the steep drop in crude.
This represents good news for refinery margins, as Naeem Research expects ERC’s losses to narrow down significantly in Q1 of 2021. With regards to other commodities, the trends are currently a mixed bag.
Meanwhile, chemical (petchems and urea) and food commodities (wheat, corn, raw milk powder) benchmarks remain high, whilst metals such as iron ore and copper show clear signs of correction.