Budgeting for oil prices

The decline in global oil prices might seem like good news for the budget of an oil-importing country like Egypt. However, a Shuaa Investment Bank report released a few days ago warned against taking the decrease in oil prices for granted.

Oil, much like any commodity whose price is determined by political and economic factors, remains open to multiple scenarios regarding future prices. The report said the Organisation of Petroleum Exporting Countries (OPEC) had agreed to reduce oil production by 1.2 million barrels per day (bpd), which could have an effect on prices, as could changes in the political scene in the US.

Such factors threaten Egypt’s plan to reduce its budget deficit and achieve a primary surplus, especially with the unclear stance of the Mustafa Madbouli government towards hedging mechanisms against fluctuations in oil prices, the report said.

Media reports cited government sources in early October as saying that the government was preparing regulations to apply hedging mechanisms against the dangers of fluctuations in the prices of basic commodities and oil.

The subsequent reduction in oil prices led the government to postpone its plans.

Omar El-Shenety, managing director of the Multiples Investment Group, said that fluctuations in global oil prices were linked to factors of supply not demand.