Economic Slowdown, Subsidy Reforms Hit Fuel Demand in Oman

Published July 31st, 2017 - 11:16 GMT
Drivers queue up to fill their tanks with fuel at a petrol station in Kuwait City on the eve of increased petrol prices on August 31, 2016. (Yasser Al Zayyat/ AFP)
Drivers queue up to fill their tanks with fuel at a petrol station in Kuwait City on the eve of increased petrol prices on August 31, 2016. (Yasser Al Zayyat/ AFP)

The slowdown in economic activity and fuel price reforms that were introduced in early 2016, have impacted demand growth of petrol and gas oil in Oman and other GCC markets.

Total domestic sales of petrol (M91 and M95) decreased 4.9 per cent to 11.21 million barrels in the first half of 2017 compared with 11.78 million barrels in the same period of last year, according to statistics released by the National Centre for Statistics and Information (NCSI).

Domestic sales of gas oil fell by seven per cent to 8.14 million barrels in the first half of this year against 8.77 million barrels in the first half of 2016.

Aviation fuel oil sales, however, grew by nine percent to 2.37 million barrels, the NCSI statistics showed.

"The slowdown in economic activity and the limited price reforms that were introduced in early 2016 have impacted energy demand growth in the GCC region", Arab Petroleum Investments Corporation (APICORP) said in its energy research note recently.

APICORP said further price reform will likely have a more significant impact on domestic demand in the GCC countries, possibly freeing up more refined products for exports.

The NCSI statistics showed that there has been a significant growth in Oman’s refinery output this year despite a decline in local demand. Total production of petrol (M91 and M95) rose 3.2 percent to 12.63 million barrels in the first half of this year compared with 12.23 million barrels last year, and gas oil production jumped by 13 percent to 11.78 million barrels.

As the refinery output significantly exceeded local demand, Oman’s export of petrol (M91) jumped to 1.1 million barrels in the first half of 2017 from just 67,000 barrels in the same period a year ago. At the same time, export of gas oil more than doubled to 3.55 million barrels from 1.65 million barrels in the first half of last year.

‘The slowdown in demand growth in the region is freeing up more refined products for export, competing with Asian refineries in more congested products market’, APICORP said.

It said the surge in GCC refining capacity in the past decade was mainly a response to rising domestic demand but also an effort to diversify away from crude exports and integrate the crude, refining and petrochemical industries.

‘It is also having an impact on trade flows. The year 2016 marked a milestone for the GCC region as it became a net exporter of all refined products, although a marginal exporter of petrol’, APICORP added.

The weak fuel demand is hurting Oman’s oil marketing sector firms. The sultanate’s all three oil marketing companies reported significant declines in their net profits for the first half of 2017 despite growths in revenue due higher fuel prices.

Oman Oil Marketing Co’s net profit fell 28 percent to RO3.63 million for the six months period ended June 30, 2017 compared to RO5.02 million in the same period a year ago.

Al Maha Petroleum Products Marketing Co reported a 40 percent year-on-year decline in first half net profit to RO2.72 million, while Shell Oman Marketing Co’s net profit fell 25.6 percent to RO6.55 million.

 


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