( Gulf ) - UAE economists and investment bankers have cautioned against any increase in domestic fuel prices corresponding with prevailing international crude oil prices which are at all-time highs.
Such a move is certain to exert inflationary pressures on the country's thriving oil-driven economy, they said.
Fuel prices in the country are currently much cheaper than those in Europe and the United States and experts say the federal government should do all it can to hold fuel prices at the pumps since domestic consumption is a fraction of the UAE's oil exports, and given the current global oil prices, even if some extra crude is allocated for use locally, there would hardly be any noticeable change in the country's burgeoning oil export revenues.
Oil and natural gas production have been the mainstay of the UAE's economy and will remain a major revenue earner far into the future, due to the vast hydrocarbon reserves at the country's disposal. Proven recoverable oil reserves are currently put at 98.2 billion barrels or 9.5 per cent of the global total.
Last year the UAE's inflation hit a 19-year high of 9.3 per cent. A larger number of expatriates working in the country are losing a major share of their earnings to inflation and currency depreciation as the dirham is pegged to the US dollar.
Following the recent US interest rate cut, currency markets dumped the dollar in favour of other stable currencies, resulting in the dollar's sharp decline.
"If the domestic oil retailers increase prices of gasoline, which are government-determined, and if diesel prices also go up, the increase is bound to be reflected in the cost of the production of industries and prices of all agricultural and manufactured products," Dr. Mohammad Amerah, an Abu Dhabi-based economist, told Gulf News.
Amerah said in the event of fuel prices going up, producers would shift the increase to consumers by charging higher prices for their products. "The UAE needs to keep a close watch on rising inflation and raising fuel prices would stoke it further," said a top investment banker.
Officials at the Ministry of Energy declined to speak on the fuel price issue when contacted by Gulf News.
Last Thursday, the New York Mercantile Exchange expiring October crude rose $1.39 or 1.7 per cent to settle at $83.32, but reached $84.10 in electronic trade after the end of the session. The $84.10 peak was a record high for Nymex front-month crude. Crude prices have been rising sharply on supply concerns in September and more so, since September 11, when the Organisation of Petro-leum Exporting Countries (Opec) decided they will have to pump 500,000 barrels additional oil per day from November 1 to address any shortfall in the market.
However, worldwide, until now, the impact of the latest spike in global crude prices has yet to be felt by the consumers.
According to the latest oil market figures, in the UAE, the cheapest variant of gasoline currently costs Dh5.75 per gallon ($1.5667), while in Saudi Arabia - the world's largest oil producer, gasoline costs $0.91 a gallon in its capital city Riyadh. In Kuwait, the fuel retails at $0.78 a gallon, while it is sold the cheapest in Caracas, Venezuela at $0.12 a gallon, substantially less than the price of a 500 ml packaged water bottle in Dubai, or Abu Dhabi.
Motorists in Saudi Arabia are paying less than they did several years ago, as the country is using its growing oil revenue to keep domestic pump rates among the world's most inexpensive.
In the US, the world's largest oil importer, average retail price for regular gasoline actually decreased 3.1 cents last week to $2.787 per gallon as of September 17.
In China and India, two of the world's fastest growing economies and oil consuming nations, oil subsidies are protecting customers, leaving demand inelastic to global crude price hikes. Even with prices hovering well past $83 a barrel in New York, drivers in these countries are paying the equivalent of about $50 for oil. While in Beijing the price of gasoline is equivalent of $2.40 a gallon, in Mumbai, India's financial capital, it's $4.64 a gallon.
India has no immediate plans to raise the price of transport fuels but may issue bonds worth Rs80 billion ($1.97 billion) to state-run oil companies by the end of this month to compensate them for selling fuel at the discounted rates.
In London, the price of gasoline is $6.36 a gallon, in Tokyo it's $4.93 a gallon and in Sydney the customers have to pay $3.76 for every gallon purchased. In Frankfurt the fuel retails at $6.10 a gallon and in Hong Kong and Oslo it sells for $6.54 and $6.99 per gallon, respectively.
Local oil industry sources told Gulf News that the domestic oil retailers are hopeful the federal government will allow an increase in the state-set prices of gasoline which have remained at a standstill for more than two years. Gasoline prices in the UAE have remained unchanged since September 1, 2005, when the prices were allowed to be increased by Dh1.5 a gallon. However, prices of the main industrial fuel - diesel - have fluctuated as per the prevailing market conditions.
The sources said Dubai-based oil retailers - Emirates National Oil Company (Enoc), Emirates Petroleum Products Company (Eppco) and Emarat - which buy gasoline from several sources are more susceptible to spikes in crude prices than the Abu Dhabi-based Adnoc Distribution, which sells fuels sourced entirely from the Abu Dhabi National Oil Company (Adnoc), the main UAE crude oil producer and refiner.
Oil company executives would not confirm or deny whether they have gone with their requests to the government to be allowed to increase the fuel prices.
Though Enoc has a 120,000 barrels per day refinery at Jebel Ali, it does not produce any gasoline as of now, and the bulk of what it sells, it's widely believed, is sourced from Adnoc at prices which are government-determined. Enoc, Eppco and Emarat sell gasoline at prices that range between Dh6.25-Dh6.75 per gallon.