ESAI: Price hikes to cut Saudi oil demand

Price increases accompanying economic reform will lower demand for gasoline in diesel again next year in Saudi Arabia, predicts ESAI Energy LLC, Boston.

Price increases accompanying economic reform will lower demand for gasoline in diesel again next year in Saudi Arabia, predicts ESAI Energy LLC, Boston.

According to the firm’s Middle East Watch Products report, the Saudi government is expected to raise product prices as soon as next month.

Until crude oil prices slumped in 2014, oil demand had been growing rapidly in Saudi Arabia and other Middle Eastern oil-producing countries.

Saudi Arabia has begun a sweeping program aimed at lowering consumer subsidies and its economy’s dependence on oil sales.

According to ESAI, the imminent changes will raise the price of gasoline to 36¢/l. from 20¢/l. and of diesel to 24¢/l. from 12¢/l.

The firm expects the price hikes to trim Saudi demand for gasoline by about 20,000 b/d next year to 580,000 b/d and for diesel by 40,000 b/d to 550,000 b/d.

“The Saudi government wants to bring fuel prices to parity with international market prices by 2020,” says ESAI Energy Analyst Amrit Naresh, noting that the November increases will nudge the Saudi gasoline price to 70% of international parity and the diesel price to 50% of the global marker.

“We expect further price hikes in the coming years,” he says.

In all Gulf Cooperation Council countries, Naresh adds, a value-added tax system due in place next year will accommodate further tax hikes that will increase consumer prices and suppress growth in fuel demand.

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