Slow Growth, Subsidy Reforms Hit (P)GCC States

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 (Persian) Gulf Cooperation Council states’ markets.

Total domestic sales of petrol (M91 and M95) decreased 4.9% 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 Center for Statistics and Information, Albawaba reported.

Domestic sales of gas oil fell by 7% 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 9% 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 (P)GCC region”, Arab Petroleum Investments Corporation said in its energy research note recently.

APICORP said further price reform will likely have a more significant impact on domestic demand in the (P)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% 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% 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 (P)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 (P)GCC region as it became a net exporter of all refined products, although a marginal exporter of petrol,” APICORP added.