Saudi firms warn Aramco fuel price rise may curb earnings

Dubai — Scores of Saudi Arabian companies say their earnings could be dampened this year as production costs will increase after state energy group Saudi Aramco told them it would sharply raise feedstock and fuel prices.

Companies including Nama Chemicals and Saudi Ceramic said in regulatory filings that they were notified by the energy giant on Wednesday that from January 1 the retail diesel price for 2024 will rise by 53% to 1.15 riyals ($0.3067) per litre, its third increase since 2016.

While it remains low compared to US prices of $3.979 a gallon, or $1.051 a litre, as reported by the American Automobile Association, the hike still marks a substantial cost increase.

Qassim Cement, Saudi Aramco Base Oil Company and Rabigh Refining and Petrochemical were also among companies that warned of the impact of the price increases in regulatory filings late on Wednesday and Thursday. Natural gas and other fuel prices will also rise but the companies did not specify by how much.

The companies said they could start feeling the effect in the first quarter and were looking for ways to improve efficiencies to offset the rising costs. Saudi Aramco did not immediately respond to a request for comment. 

The price rises are part of domestic fuel price reforms initiated by Saudi Arabia’s government. The reforms began in 2016 in response to lower oil prices at the time, boosting petrol, diesel and electricity prices the following year, as the kingdom sought to gradually eliminate energy subsidies.

“While the market is taking the news negatively, investors were aware of a potential increase given how low prices were,” said Yousef Husseini, director at EFG Hermes’ equity research division. “I think most investors as well as producers viewed it as inevitable but there was no clarity at how large the increases could be nor the timing,” he said.

Middle East Company for Manufacturing and Producing Paper said it expected its total annual sales costs to rise by about 3% due to the fuel price hike. Saudi Industrial Investment Group also spoke of higher production costs for its subsidiaries but did not specify the impact.

Rising costs associated with the development of the kingdom’s Jafurah gas field may have led Aramco to take the decision to hike prices now, said Husseini, who covers Aramco and Saudi Arabia’s petrochemical sector.

Jafurah is the kingdom’s biggest unconventional non-oil associated gas field, which in 2020 was estimated to require investments of $110bn. It is potentially the biggest shale gas development outside the US.

“It is a massive field that will likely have higher production costs than the associated fields, so makes sense to push through an increase with the start-up of operations from this field,” Husseini said.

Reuters