Prices of Brent oil suffered another hit continuing its decline, dropping to $50 per barrel. This is the lowest price witnessed in five years on the price of oil. Former minister of petroleum Osama Kamal expected the drop in oil prices’ effect to be reflected in the third quarter (Q3) of the fiscal year (FY) 2014/2015.
“Oil products that are currently being delivered were contracted on months ago,” Kamal said. “On average, Egypt covers around 60% to 65% of its oil needs from to domestic production while around 35% to 40% are imported from abroad.”
Kamal told Daily News Egypt that the drop in oil prices will have a limited on the subsidies budget.
“Brent crude oil comprises some 50% of the end petroleum product,” he said. “This means that the price of the end product will decrease by 25% only.”
Given the percentage of Egypt’s imports, a 7.5% decrease in the budget for oil imports can be expected, the former minister said.
Chairman of the Egyptian General Petroleum Corporation (EGPC) Tarek El Molla said that a low Brent price is in Egypt’s favour in terms of decreasing the fuel subsidy bill.
El Molla said, however, that it is difficult to make use of the low price and import additional quantities of crude or petroleum products at present. This is due to a lack of foreign currency needed to do so.
International stock markets have suffered several losses due to the oil prices decline that has been happening for several weeks.
Prior to most recent decline in oil prices, Dcode economic and financial consulting firm stated in its latest report that Egypt’s subsidy bill at the current oil prices per barrel would decline by EGP 25bn. This represents around 0.5% of the expected gross domestic product (GDP) for the next fiscal year.
The Dcode report suggested that this would create more fiscal space that could be utilised for financing infrastructure projects.
During FY 2014/2015, petroleum product subsidies fell from EGP 100bn to EGP 75bn as a result of the low oil prices, which were calculated at $115 per barrel to $69.7 per barrel.
A statement released by Qalaa Holdings pointed out the positivity of the declining oil prices. It highlighted that this decline will lead to a decline in the budget deficit and the balance of payments in Egypt by at least $5.5bn.