Saudis may cut fuel subsidies

Khobar - However, a source in the Gulf oil industry said that Saudi officials were "seriously" thinking about reducing fuel subsidies gradually.

By Reuters

Published: Mon 7 Sep 2015, 12:00 AM

Last updated: Mon 7 Sep 2015, 2:18 PM

Saudi Arabia was looking more closely at cutting gasoline subsidies, a move it has been studying for years, after the UAE did so last month, with both states trying to save money in an era of cheaper oil, a newspaper reported.
Saudi domestic gasoline prices are some of the lowest in the world. Allowing them to rise would be one of the biggest economic reforms in the country for years and a highly politically sensitive one as many Saudis rely on cheap fuel.
UAE let gasoline prices rise 24 per cent last month. Al Watan's Saturday edition quoted unnamed sources as saying Saudi Arabia cannot leave gasoline prices at ultra-low levels indefinitely because that would hurt the economy. The newspaper did not elaborate on when the government might make a decision and gave no details on the possible reform.
However, a source in the Gulf oil industry told Reuters that Saudi officials were "seriously" thinking about reducing fuel subsidies gradually.
Riyadh would probably not act as aggressively as the UAE because of political and economic considerations, the source said. He said UAE officials had advised Riyadh to "start small", possibly raising prices just a few per cent.
Saudi energy officials could not immediately be reached for comment. Unleaded gasoline costs only about 15 US cents per litre in Saudi Arabia, the world's lowest price after Venezuela, according to website mytravelcost.com.
Economists estimate removing gasoline subsidies would save the kingdom nearly 30 billion riyals ($8 billion) annually, Al Watan reported. That would be a significant saving in a budget deficit which analysts estimate could total $120 billion or more this year if crude prices stay low, slashing state revenues.
The reform could also help hold back burgeoning consumption. Domestic oil product demand rose 5.1 per cent year-on-year to a record 2.98 million barrels per day in June, according to the Joint Oil Data Initiative.