Tuesday, June 07, 2011

Shortage at Dubai-owned gas stations

Fake Plastic Souks sets up the story of Dubai-owned petrol stations that don't have gas while Abu Dhabi ones do, and one of his commenters gets close to the answer: x I suspect that in Bahrain and Oman the fuel retailers buy discounted fuel from the refiners, who in turn buy discounted crude from the national oil company, thus pushing the subsidy back up to the national oil company, which can afford to pay for it because it sells the vast majority of its oil at $100/bbl on international markets. Clearly, this practice results in a huge amount of "foregone revenue" for the national oil company because it could have sold all that crude at world prices, instead of selling some of it at a discount. This is effectively the support that the government has decided to give to Mohammed Public when he fills his car.

In Dubai, I think the retailers don't get such a good discount on fuel from the refiner (because Dubai is not oil-rich). Historically, they have tried to make up the difference by selling other goods and services at the fuel station at high margins (sweets, car washes, McDonalds franchises). But at $100/bbl crude price, that just isn't enough.
The Abu Dhabi-owned petrol stations remain open; they are in the position of the national owned companies in other GCC countries. All the companies are losing money on each litre sold. It's that the Dubai companies who have decided to let Abu Dhabi be the government that keeps prices low and take a loss to keep the public happy.

As suggested by some of the other commenters the Dubai-owned companies occasionally play a hold up game in order to prepare the public for a price hike, or induce Abu Dhabi to sell to refined products to the Dubai-owned companies at a discount. The Dubai-owned companies have the biggest frontprint of retail outlets, and their closure does upset the public.

By the way, the UAE's refining capacity is in Abu Dhabi, and it is not enough to supply the country at the prices set. That is, the oil-rich UAE imports refined products.



Anonymous olsonsfoodemporium said...

The chap is completely right, and there's no skepticism.

3:41 PM  

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