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Friday, July 01, 2022

Arabian Business - UAE fuel prices increase around 10 percent in July: Everything you need to know

By Century Financial in Century in News

Arabian Business - UAE fuel prices increase...
Vijay Valecha, Special to Arabian Business July 1, 2022

Petrol prices in the UAE will increase again in July – following months of significant increase since March of this year.

Here’s a breakdown of the prices per litre as of July 1:

  • Super 98: AED4.63 — up by 11.5 percent from AED4.15 in June
  • Special 95: AED4.52 — up by 12.1 percent from AED4.03 in June
  • Diesel: AED4.76 — up by 9 percent from AED4.14 in June
  • E-plus 91: AED4.44 — up by 12.1 percent from AED3.96 in June
  • The price movements followed a trend since March when the UAE fuel price committee raised the prices by 10 percent, then 16 percent in April, and 13 percent last month.

    Additionally, here is a look at the latest developments around fuel prices in the last month and what experts have to say:

    Petrol prices for June 2022

    The cost of Super 98 petrol was increased to AED4.15 a litre, up from AED3.66 a litre in May, and Special 95 was increased to AED4.03 a litre, up from AED3.55 in May.

    The cost of fuel is being impacted by an ongoing squeeze on energy prices and global inflation.

    As such, petrol prices in the UAE have progressively risen from February this year, with global oil prices have stayed above $100 a barrel for most of 2022.

    In response, UAE residents are considering switching away from petrol and diesel-run vehicles at higher rates than previously recorded, a survey found last month.

    The price of US petrol reaches $5 a gallon in historic first

    Data from the American Automobile Association (AAA) shows a surge in fuel costs across the country despite measures to lower prices.

    The price of US petrol reached $5 a gallon (AED18.4) in a historic first as fuel costs continue to surge.

    Data from the American Automobile Association (AAA) showed the national average price for regular unleaded petrol rose to $5 a gallon on June 11, up from $4.986 a day earlier, according to news agency Reuters.

    US President Joe Biden has taken measures to try to lower prices, including a record release of barrels from US strategic reserves and waivers on rules for producing summer petrol.

    The US has also spoken to major OPEC countries about boosting output. However, fuel prices have been surging around the world due to a combination of rebounding demand, sanctions on oil producer Russia after its attack on Ukraine and a squeeze on refining capacity.

    Economists expect demand may start to decline if prices remain above $5 a barrel for a sustained period, reported Reuters.

    The US petrol average is still around 8 percent below its June 2008 highs of $5.41 a gallon, according to US Energy Department figures. However, this price has been adjusted for inflation and never physically reached that level.

    As of Thursday, the price of the OPEC basket of 13 crudes stood at $123.21 a barrel, according to OPEC Secretariat calculations.

    Uber raises UAE fares as petrol prices continue to rise

    Uber announced it would raising prices for fares in the UAE while petrol prices have continued to increase.

    The firm said that it would increase fares 11 percent for some trips, Uber said in an email to customers, Bloomberg reported. This marks the second time this year that the company has increased prices in the UAE.

    Petrol prices have increased 56 percent since the start of the year in the UAE, Bloomberg said.

    The cost of fuel is being impacted by an ongoing squeeze on energy prices and global inflation.

    As such, petrol prices in the UAE have progressively risen from February this year, with global oil prices have stayed above $100 a barrel for most of 2022.

    In response, UAE residents are considering switching away from petrol and diesel-run vehicles at higher rates than previously recorded, a survey found last month.

    Factors causing inflation of fuel and food prices ‘beyond the control of central banks’: experts

    The recent UAE move to raise interest rates would take time to curb inflation, as supply-side factors continue to put pressure on commodity prices, a leading economist told Arabian Business.

    Central banks across the Gulf have followed the US Federal Reserve’s decision to lift key interest rates in an attempt drag inflation down – but Scott Livermore, chief economist at Oxford Economics Middle East, said that in the UAE, the move “will do little to curb current levels of inflation in the short term.”

    Recent geopolitical events, as well as ongoing supply chain disruptions, have already put undue pressure on the prices of energy, food, and other commodity prices – and these factors are “beyond the control of central banks,” Livermore said.

    “The impact of interest rates takes time to feed through to demand – typically 12-18 months,” he added, noting both higher inflation and interest rates will be detrimental to overall consumer sentiment.

    According to Vijay Valecha, chief investment officer at Dubai-based consultant Century Financial, the rate hike will be reflected on all loans and mortgages, pushing UAE consumers to spend less, especially as the use of credit cards is high in the country.

    “The aggressive move will result in higher borrowing costs in turn causing consumers to spend less and ultimately cooling the pressure on prices,” he told Arabian Business.

    “For now, consumers may feel the sting of higher prices more acutely than the pinch of a three-quarter point bump. But stack several rates increases together and consumers will start to feel the pressure,” he added.

    Valecha said future hikes may be expected to further curb high inflation and this might “aggressively” affect consumers’ spending decisions. However, he noted that higher interest rates will eventually cool down inflation in the long run.

    Consumers in the UAE have been feeling the brunt of high commodity prices recetly. An earlier report by Emirates NBD said consumer inflation rose to 4.6 percent in April 2022 compared to the same month last year.

    Transport costs led the jump in inflation, the report showed, followed by food prices, which were up 8.6 percent year-on-year.

    According to PwC, interest rates were generally cut low to stimulate demand at the beginning of the Covid-19 pandemic. When interest rates are low, demand goes up, which also drives up consumer prices.

    The US Federal Reserve had earlier mentioned plans to raise interest rates to control inflation, and GCC central banks were keen to follow suit.

    More so in the Gulf, PwC said subsidy regimes “held bank inflation for many years, but many aspects of them have been withdrawn since 2016.”

    Rising food and fuel prices: What does it mean for markets?

    The Bloomberg commodity index has gained 35 percent so far this year. To understand why this matters, one must first understand that the Bloomberg commodity index is a broadly diversified index that tracks the prices of the physical commodity markets.

    It matters because energy accounts for 30 percent of the index weight, and grains, which include corns, soybean and wheat, accounts for 22.5 percent. The price of soybean has increased by 26 percent year-to-date, corn by 31 percent and wheat by a whopping 40 percent since 2021.

    The current conflict between Russia and Ukraine has had a major impact on global oil supplies and wheat exports. Russia is the world’s third-largest wheat producer by 85 million tonnes, whilst Ukraine is the eighth with 25 million tonnes.

    However, the war itself is not the only reason. Oil and petrochemical products are significant components of the agricultural fertiliser industry, and Brent crude oil has gained 60 percent so far this year, followed by 64 percent for WTI crude oil.

    Climate change is also a major factor. Abnormally heavy rain and exceptionally hot weather in various parts of the world are having a devasting impact on both human life and agricultural production thanks to droughts, fires and floods.

    Government subsidies also play their part. For example, the US government subsidises corn production for biofuels, and it can therefore manipulate global supply and demand. And finally, we can’t ignore the fact that the reopening of the world’s economies after the Covid-19 crisis increased the global demand for food. In 2020, food prices, including meat, fish, eggs and poultry, increased by 3.3 percent worldwide.

    As for the rest of 2022, unfortunately, the food crisis shows no signs of settling, and prices are unlikely to drop, thanks to high energy prices, global supply disruptions and the ongoing war. The historical record of global inflation is everywhere now, not only in the advanced economies.

    We fear this will have socio-political consequences in Asia and Africa, as poorer countries will be highly exposed to the risks of bankruptcy, famine, default on government bonds and political unrest. Only a few weeks ago, Sri Lanka defaulted on its debt for the first time in history due to the Covid-19 crisis, government mismanagement, higher energy costs and soaring inflation.

    The problem now is that the multinationals that produce, trade and store commodities are having their best days in years. For example, the Glencore stock price has gained 25 percent so far in 2022, while Archer Daniels increased by 21.3 percent, both far outperforming the S&P500, which fell by 21 percent in 2022.

    It’s clear that the steps taken by the world’s central banks have been too little, too late. As they failed to take the initiative months ago, the current reactions will only buy time. All they can do now is increase interest rates to curb inflation while reducing the balance sheet, providing less cheap liquidity to the markets.

    What many experts tend to ignore is the fact that the central banks’ tools are limited and only set for monetary policy targets. Solving the global inflation dilemma and controlling skyrocketing food prices will need strong government intervention, new global trade deals and routes, lowering of tariffs, and last but certainly not least, ending the ongoing war in Europe.

    The current market turmoil and massive global energy prices have only served to prove that investment in sustainable and renewable energy infrastructure is no longer an option, but a vital necessity.

    We predict that investment in these sectors will continue to grow, and more innovation will be deployed, and that green hydrogen will play a big role in it all.

    Investing in tangible assets that create value is one of the best options available to traders and investors. Swissquote’s Food & Water certificate allows investors to access the global key players in water and food development and production.

    Commodities have generally outperformed the US stock market in the last year. BDRY ETF (Breakwave Dry Bulk Shipping) is one of the best performing ETFs, achieving 136 percent over one year. BDRY is a commodity pool that provides exposure to the dry bulk shipping industry, a key part of the global commodity markets.

    GRN ETN (Exchange-traded note) is also one of the best performing indexes, achieving 127 percent over one year. GRN tracks the price of carbon, making this ETN a good option for climate investing as well as commodities.

    Rising fuel prices makes a case for electric vehicles – how prepared is the Middle East to take advantage? The future’s electric – certainly when it comes to transport, says Markus Leithe, Group Managing Director, Middle East at Stellantis.

    In fact, few would argue with that statement, given the billions being spent on research and development by the automotive industry, the concerns around climate change and protecting the planet, or the legislation coming into play in countries all over the world.

    At Stellantis, we’re investing 30 billion euros by 2025 in bringing sustainable mobility tech and electrification to the masses, so we’re seeing a glimpse of that future first-hand.

    But the present? It’s the region’s car owners who are yet to make the switch. The reasons to do so are becoming ever clearer. Petrol prices are rising rapidly. We’ve seen increases in 2022 of 10 percent or more each month, up again in June, with global oil now topping $100 a barrel. Fuel prices across the UAE were deregulated from 2015, allowing them to move in line with global markets, and as a result we’ve never seen them so high.

    It certainly makes a better case for buying electric. Fully charging an electric vehicle (EV) costs just a tiny fraction of filling a tank with petrol, and as shown by the 2020 Consumer Reports study, EVs are cheaper to repair and maintain, with owners spending $6,000-10,000 less on average over the lifespan of the vehicle.

    Only we’re not seeing a rush to MENA showrooms to buy electric vehicles. Clearly, there are still some reservations, despite the hike in fuel prices, and more that can be done, particularly in terms of public and private sectors working together, to speed up adoption.

    According to a recent survey, 52 percent of UAE residents expressed an interest in purchasing an EV or hybrid, up from 40 percent in September last year. It gives an idea of where the current sentiment lies, with environmental concerns said to be another incentive.

    If public and private sectors could work together on steering policy alongside innovation, this could support awareness and adoption. After all, consumers want to feel confident on two fronts: that driving an electric car will not interfere with their lifestyle, and that there are sufficient accessible charging stations out there, quelling so-called ‘range anxiety’. Owning and running an EV needs to seem easy and convenient.

    The number of charging stations in the region is growing. In the UAE, there’s still a concentration around Dubai and Abu Dhabi, so it was welcome news this month that 10 ultra-fast EV charging stations are to be installed on UAE highways in Ras Al Khaimah, Ajman, Umm Al Quwain and Fujairah.

    But could a roll-out be scaled up with the help of the private sector? And even efficient and affordable chargers fuelled by solar and wind power? Hotels have charging stations now, so why not other businesses?

    Public and private sectors need to find new ways of working that transcend the current sectoral barriers, find more common ground, and implement policies and proposals together. Other ideas, such as digitalisation, could also be drawn upon to make these processes, and cohesion between both sides, more efficient.

    A standardisation of regulations across regions would help too. Abu Dhabi’s Department of Energy recently announced a new policy for EV charging infrastructure, which details the standards around the ownership, installation and management of charging stations, as well as pricing for consumers. Such ideas are needed further afield.

    It would be good to see other emirates, GCC countries, the wider MENA region, plus companies and stakeholders working together on this. Simultaneously, the range of electric vehicles available here needs to appeal to the mass market, and all tiers of the region’s society.

    Working together on this is important, as adoption, and how appealing and convenient electric vehicles are for consumers, will not happen in isolation. Collaboration could even help to address concerns around affordability, as due to the raw materials and technology involved, electric cars remain among the more expensive in the market currently.

    And regional governments are able to help through by exploring incentives such as free parking in certain areas, or offering lower registration fees, and renewals to encourage uptake among both individuals and commercial owners.

    We’re all in this together in terms of fighting climate change, so why shouldn’t collaboration be encouraged wherever possible? At Stellantis, this approach is at the heart of what we do, working with car manufacturers from across the industry, as well as the likes of Apple and Amazon. It’s essential to us becoming the industry champion in climate change mitigation, reaching carbon net zero by 2038, with a 50 per cent reduction by 2030, as part of our Dare Forward 2030 Strategy.

    Great ideas always come from all players working together, and perhaps it’s time for more of us to collaborate to increase EV adoption for the good of the planet, and position ourselves to take advantage of the opportunities that will arise. The future’s electric. We all need to make sure we’re agile and innovative enough to grasp it.

    Arabian Business