Painful as it may be for the wallet of the consumer, the decision to hike the price of petrol is good for the economy and the environment.
Petrol prices in the UAE are state-set. According to June estimates, the UAE state oil marketing companies were losing an estimated Dh16.5 million a day on petrol sales as the difference between state-set prices and the cost of imports increased.
However, Brent crude on the London market continues to trade above $110 a barrel, while the prices on the New York Mercantile Exchange have been hovering around $85 a barrel, allowing little respite for Dubai retailers, who import all their petrol at market-determined prices
The UAE’s oil companies will raise petrol prices by Dh0.20 a litre, effective Thursday, as part of the gradual liberalisation of the market in the country.
Petrol in the UAE is highly subsidised, which helps consumers pay a reduced price but inflicts a toll on the companies and the government. While the UAE has oil resources, refining it into petrol carries a significant cost.
The price of petrol in the UAE will have to increase further before the companies’ real costs are covered and they are able to make a sustainable profit.
However, once the price is market related, the companies will have to increase and decrease it in line with the fluctuating international cost of oil.
In any event, fossil fuels are a major source of pollution but cheap petrol has encouraged people to use their cars without proper consideration for the cost and the environment.
An increase in the price of petrol will encourage people to think twice before driving and to begin to make more use of public transport, to the benefit of the environment in which we all live.
The current scenario, where ENOC has to bear the burden of higher inter-national fuel prices while at the same time distributing fuel at subsidised rates, is clearly not sustainable or viable for the company, a spokesperson said in a statement.
?The cost of providing subsidised fuel to our customers is expected to lead to a loss of Dh2.7 billion for the company this year. This also has a serious impact on our ability to expand our retail net-work to meet the growing demand,? the statement said.
UAE PETROL PRICE COULD DOUBLE
Retail petrol prices at Dubai?s ENOC/EPPCO stations could surge up to Dh1.7 per litre if local distributors decide to match international gasoline prices, Emirates 24/7 calculations show.
With the price of a barrel of oil (Nymex WTI) hovering around the $90-mark in the international market, pressure on local distribution companies to hike the retail price of petrol at local pumps seems to be mounting.
Indeed, such losses are not new to this year alone, and local retailers have been sustaining losses for some years now. ?The losses of [UAE?s] oil marketing and distribution companies are estimated at about Dh3bn just in 2009,? the Economist Intelligence Unit (EIU), a research firm, estimated in a report issued last year. ?The losses were particularly acute in 2008, when oil prices reached record levels, but they accumulated again this year  as prices crossed the $80/barrel mark,? the EIU confirmed.
As we all know, the spot price of crude ? and with it that of refined fuel ? fluctuates on a daily basis, this leaves room for further appreciation of prices. In fact, refined fuel peaked on April 24 this year, with Singapore grade surging to an equivalent of Dh3.21 per litre and LA grade at Dh3.39 per litre ? literally double the retail price in Dubai.
Sources: Gulf News, Emirates247
(By Chetankumar Pujari; Edited by Moign Khawaja)