Oil price drop spurs Egypt fuel subsidy phase-out once more

The continued collapse in oil prices will encourage Egyptian government to slash fuel subsidies once more to reduce the country’s budget deficit, said Amr Mostafa – vice chairman of state-run Egyptian General Petroleum Corporation (EGPC).

Mostafa further told Amwal Al Ghad Sunday, that the international oil price drops would save cash for Egypt’s oil sector in the second half of the current financial year.

Oil prices extended their freefall on Friday, flirting with 11-year lows, after the International Energy Agency (IEA) warned that global oversupply of crude could worsen next year.

Brent and U.S. crude’s West Texas Intermediate (WTI) futures fell as much as 5 percent on the day and 12 percent on the week as mild pre-winter weather and a plummeting U.S. stock market added to the toll on oil prices.

Egypt has estimated that Brent crude oil would cost around of $75 per barrel in its state budget for financial year 2015-2016, and now oil prices are ranging between $40-50 per barrel. This reflects positively on reducing the import bill of crude oil, other petroleum products and natural gas, the EGPC official added.

Accordingly, the government would earmark 40 billion Egyptian pounds ($5.1 billion) for fuel product subsidies in the draft 2016/2017 budget, Mostafa noted.

Fuel subsidies have long weighed on the state budget and contributed to the economic stagnation that President Abdel Fattah al-Sisi promised to tackle when he took office last year.

Falling oil and gas production just as demand increased has turned Egypt from a net energy exporter into a net importer in recent years. Oil Minister Tarek El-Molla said in a statement a month earlier “beyond 2022” was a reasonable estimate for the country to return to a status as a net exporter. “Self sufficiency,” he said, was the priority.