February 27, 2017 / 3:02 PM / 6 months ago

Saudi Arabia may raise gasoline prices by 30 pct from July

KHOBAR, Saudi Arabia, Feb 27 (Reuters) - Saudi Arabia may increase its domestic gasoline prices by 30 percent from July, industry sources said, part of a reform plan by the world's top oil exporter to align its fuel prices with global benchmark levels.

In December 2015 the kingdom raised the price of 95 octane gasoline to 0.90 riyal ($0.24) per litre from 0.60 riyal.

However, that still kept Saudi Arabia among the countries with the cheapest gasoline prices in the world.

The government now wants domestic fuel prices to be on a par with international levels by 2020. The move, part of reforms to ease the burden of subsidies on government finances, will drive energy efficiency and cut consumption, sources say.

"Basically, a 30 percent is what everyone is talking about," said a person familiar with the matter who declined to be identified.

Two other industry sources confirmed a 30 percent rise was being considered. A third source said a decision had yet to be taken on the exact increase and the mechanism for doing it.

"There might be a change in the date or the percentage of the increase in line with the financial burden that citizens may shoulder," one of the sources said.

The Saudi Ministry of Energy did not respond to a request for comment.

Energy Minister Khalid al-Falih had said the gasoline price will be linked to a benchmark price.

Analysts say, the kingdom, the largest economy in the Gulf region is likely to follow the mechanism of the United Arab Emirates and link domestic fuel prices to international ones.

REDIRECTING SUBSIDY

As the government tries to curb wasteful consumption, the fuel increase is linked to "The Citizen Account", from which cash handouts will be given to low to medium income Saudis.

"People have already started to switch to lower grade gasoline and if they haven't then they will do it this year, the cash handouts will alter consumer behaviour but may benefit other sectors in the economy," said Mustafa Ansari, an energy analyst at APICORP.

Policies and measures will be determined by a ministerial committee made of ministers of labour, finance, economy and planning for the Citizens Account before May 1, said Majed al-Osaimi, the general supervisor of the social development sector and the Citizen Account.

Analysts say demand growth for motor fuel did not drop in 2016 after the December 2015 rise but it slowed. However, it is unclear if this was due to higher pump prices or a slowing economy, said David Isaak, Principal Consultant at FG Energy.

"The biggest effect from a Saudi move to market prices won't be a sharp change in demand, but a long-term change in the trajectory of demand growth," Isaak said.

BMI Research said from an estimated year-on-year drop of 3 percent in 2016, fuel demand is forecast to fall another 1 percent in 2017. ($1 = 3.7495 riyals) (Editing by Rania El Gamal and David Evans)

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