Egypt's Suez Canal revenue expected to rise after OPEC oil cuts, analysts say

Wednesday 07-12-2016 06:01 PM

Suez Canal/ Reuters

CAIRO, Dec 7 (Aswat Masriya) - Analysts expect OPEC’s recent oil production cuts to revitalise maritime movement through the Suez Canal, leading to an increase in its revenues, which have been negatively affected in the past year.

The Organization of Petroleum Exporting Countries (OPEC) agreed last week to its first production cuts since 2008, according to Bloomberg, sending benchmark Brent crude prices to top $50 per barrel.

The move went beyond the group to include Russia as well, which agreed to cut its own output.

S&P Global Platts which focuses its research on energy said in a report that despite higher crude prices being a negative on the surface for net importer Egypt, “the Arab world’s most populous country hopes OPEC’s move..will actually breathe life into the moribund traffic in its Suez Canal and provide badly needed foreign currency.”

Senior Economist at Arqaam Capital Reham al-Dosouky told Aswat Masriya that as oil prices increase, shipping costs also increase, prompting some companies to reduce that cost by taking shorter maritime routes.

Sailing through the 164-km Suez Canal can knock 11 days off a typical intercontinental voyage for which the alternative route would normally be around the Cape of Good Hope, according to Platts.

Since 2014, a “market slump” for oil and gas had resulted in less than anticipated revenue from shipping through the Suez Canal.

Suez Canal revenue was down 7 percent in October compared to the same month last year, data on the state's information websites showed.

President Abdel Fattah al-Sisi inaugurated an $8 billion expansion of the Suez Canal in August 2015 that aimed to double daily traffic and increase annual revenue to more than $13 billion by 2023. 

The national mega-project was hailed as a major success by the government for its quick completion and its highly anticipated effect on revenues. However, much depends on the global trade levels in the upcoming year, according to al-Dosouky.

The World Trade Organisation (WTO) projected global trade to increase by 1.8 to 3.1 per cent next year affected by a five-year slowdown.

Platts maintains however that revenue has a long way to climb before it reaches the 2023 target figure, forecasted by Suez Canal Authority Chairman Mohab Mameesh, adding it could backfire if the project does not soon start showing signs of fulfilling its potential.

Eman Negm, Macroeconomic Analyst at Prime Holding told Aswat Masriya that only a slight increase in Suez Canal revenue is expected because much depends on the calculations made by the companies whose ships pass through the canal.

Crude prices could stabilise at $60 to $70 per barrel in the coming period, according to Negm.

Egypt’s Sisi administration must have breathed a collective sigh of relief after OPEC's decision, according to the Platts report.

The country has strived to make up for a foreign currency shortage that has gripped the economy affecting imports and pushing up inflation rates.

Egypt has pressed ahead with a reform programme that has seen it abandon its currency peg, cut subsidies and introduce a value-added tax.

The measures helped Egypt secure a $12 billion three-year loan from the International Monetary Fund last month. It has already received the first $2.75 billion IMF instalment, helping push foreign reserves above $23 billion in November.

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