Aramco’s Fuel price Hike: Limited Impact for Most Saudi Companies, Expert says
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Aramco’s recent decision to raise fuel prices for numerous Saudi companies has sparked debate, but a leading financial expert suggests the impact will be surprisingly limited for many.
Muhammad Al-Omran, a financial markets expert, commented on the price increase during an interview with Al-Arabiya channel. He noted that while the move aligns with the goals of Saudi Vision 2030 – which aims to align domestic energy prices with international benchmarks – the timing and implementation have been a point of discussion. “When the Saudi Vision 2030 program was announced,” Al-Omran explained,”it was stipulated that energy prices within the Kingdom would move to reference prices,or what is known as international prices. Therefore, the decision itself is expected, but it seems that it was delayed, and the pace was supposed to be accelerated, at least in the individual sector.”
Al-Omran emphasized the importance of swift action to prevent price manipulation. “If we look at the timing of the declaration,” he stated, “it must be rapid so as not to give room for manipulation of prices through storage or otherwise. Thus, when such decisions are implemented, they must be quick if they concern the prices of gasoline, diesel, or fuel, as is the case with companies.”
While acknowledging the surprise some companies may feel, Al-Omran reiterated the long-term vision. “The decision might potentially be surprising to some companies,” he added, ”but we must return to the Saudi vision and the clear statements it included about the goals that the Kingdom’s government intends to implement in the medium and long term.”
The impact on various sectors, according to Al-Omran, varies considerably. “Most petrochemical companies and some companies that work in agricultural activities, the impact is limited to 1% or 2%,” he said. “But the problem is with cement companies that have a very large increase in costs. Two companies announced that the cost increases by about 10%, which is a large percentage. But we must keep in mind that cement companies have the highest net profit margins among all companies around the world, and net margins can reach 50%. If we look at a 10% increase in costs, companies remain profitable and will deal with such changes without impact. The impact may be short-term.” He further highlighted the potential for cement companies to mitigate long-term costs through improved production efficiency.
The ultimate goal, Al-Omran explained, is broader than just price alignment. “We must not forget that most of the factories in the Kingdom have old assets,” he continued. “These must improve the quality of equipment and the quality of production capacities in line with higher operating efficiency and reducing carbon emissions. This is the goal of raising fuel prices – by forcing companies to improve their production assets to be consistent with environmental standards around the world and improve production efficiency.”
Looking ahead, Al-Omran acknowledged the dynamic nature of global energy prices. “We must keep in mind that global prices could decrease in the future, and this in turn could reduce prices,” he said.”The goal is for prices within the Kingdom to be close to international prices and thus in line with global price movements up and down. In general, these are direct costs. What is crucial in the next stage is determining indirect costs, especially in sectors such as construction and transportation. we do not know how they will cost, directly or indirectly, and I believe this, in turn, will present great challenges to a large number of companies.”
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Aramco’s Fuel Price Hike: Limited Impact for Most saudi Companies, Expert Says
Aramco’s recent decision to raise fuel prices for numerous Saudi companies has sparked debate, but a leading financial expert suggests the impact will be surprisingly limited for many.
Saudi Vision 2030 Drives Price Increase
In an interview with Al-Arabiya channel, financial markets expert Muhammad Al-Omran commented on the price increase, noting that while the move aligns with the goals of Saudi Vision 2030 – which aims to align domestic energy prices with international benchmarks – the timing and implementation have been a point of discussion.
“When the Saudi Vision 2030 program was announced,” Al-Omran explained, “it was stipulated that energy prices within the Kingdom woudl move to reference prices, or what is known as international prices. Therefore, the decision itself is expected, but it seems that it was delayed, and the pace was supposed to be accelerated, at least in the individual sector.”
Swift Implementation Key to Preventing Price Manipulation
Al-Omran emphasized the importance of swift action to prevent price manipulation. “If we look at the timing of the declaration,” he stated, “it must be rapid so as not to give room for manipulation of prices through storage or otherwise. Thus, when such decisions are implemented, they must be quick if they concern the prices of gasoline, diesel, or fuel, as is the case with companies.”
Limited Impact on Many Sectors
While acknowledging the surprise some companies may feel, Al-Omran reiterated the long-term vision. “the decision might perhaps be surprising to some companies,” he added,”but we must return to the Saudi vision and the clear statements it included about the goals that the Kingdom’s government intends to implement in the medium and long term.”
According to Al-Omran, the impact on various sectors varies considerably. “Most petrochemical companies and some companies that work in agricultural activities, the impact is limited to 1% or 2%,” he said. “But the problem is with cement companies that have a very large increase in costs. two companies announced that the cost increases by about 10%,which is a large percentage. But we must keep in mind that cement companies have the highest net profit margins among all companies around the world, and net margins can reach 50%. If we look at a 10% increase in costs, companies remain profitable and will deal with such changes without impact. The impact might potentially be short-term.” he further highlighted the potential for cement companies to mitigate long-term costs through improved production efficiency.
Driving Improvement in Production Assets
The ultimate goal,Al-Omran explained,is broader than just price alignment. “We must not forget that most of the factories in the Kingdom have old assets,” he continued. “These must improve the quality of equipment and the quality of production capacities in line with higher operating efficiency and reducing carbon emissions. This is the goal of raising fuel prices – by forcing companies to improve their production assets to be consistent with environmental standards around the world and improve production efficiency.”
Future Challenges of Indirect Costs
Looking ahead, Al-Omran acknowledged the dynamic nature of global energy prices. “We must keep in mind that global prices could decrease in the future, and this in turn could reduce prices,” he said. “The goal is for prices within the Kingdom to be close to international prices and thus in line with global price movements up and down. In general, these are direct costs. What is crucial in the next stage is determining indirect costs, especially in sectors such as construction and transportation. We do not know how they will cost, directly or indirectly, and I believe this, in turn, will present great challenges to a large number of companies.”
