Saudi Arabia Considers Rise in Retail Fuel Prices in 2017

Saudi Arabia is considering increasing retail gasoline and diesel prices in 2017 for the second year in a row, as the world’s top crude exporter pursues a plan to cut its dependence on oil revenue, according to a person familiar with the matter.

The rise in domestic fuel prices is expected to be announced before the end of the year, according to the person, who asked not to be identified because the plan isn’t public.

The government is looking into two scenarios for the hike: either linking local fuel prices to benchmark oil prices or to the average of gasoline and diesel fuel prices on the international market, the person said. Media officials at the energy ministry in Riyadh weren’t immediately available for comment.

Saudi Arabia, the Middle East’s biggest economy, is pursuing a plan to rein in spending and reduce dependence on energy after a two-year slump in oil prices. Last year, it took the unprecedented step of reducing fuel subsidies and raising retail gasoline prices by about 50 percent. The kingdom, which led a global effort to curb crude output to shore up oil prices, has also said it expects to sell stakes in state-owned entities, including Saudi Arabian Oil Co., known as Aramco. The price of Brent crude, the global benchmark, has jumped 49 percent this year.

“This is something the Saudi government seems committed to carry out in order to rationalize the domestic demand versus the loss in income from sales of subsidized fuel,” said Mohamed Ramady, a London-based independent analyst and a former professor of economics at King Fahd University of Petroleum and Minerals. “But it’s imperative that poorer sections of society are shielded through a system of well-managed rebates.”

On Dec. 28, 2015, Saudi Arabia announced that it raised retail gasoline prices to 0.75 riyals (20 cents) per liter from 0.45 riyals per liter for 91-octane fuel, and 0.9 riyals per liter from 0.6 riyals per liter for 95-octane grade. The government also increased diesel, natural gas, ethane, diesel, kerosene, electricity and water prices as part of the government’s five-year plan to reduce subsidies.