Egypt struggles to buy oil as currency crisis deepens

LONDON Tue Jan 8, 2013 5:39pm GMT

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LONDON (Reuters) - Egypt's currency crisis has intensified its oil supply troubles, as the weaker pound makes it more difficult for cash-strapped Cairo to buy vital crude for its refineries.

State-owned Egyptian General Petroleum Corporation (EGPC) has only purchased 3 million barrels of crude oil for the first quarter of this year, half of what it was seeking in a tender, traders said.

That tender was already considered insufficient to supply Egypt's refineries, even at reduced running rates.

"Of course it's not enough, they need more - but no money," a trader, active in the East Mediterranean oil market said.

EGPC officials could not be reached for comment. Egypt subsidises fuel costs heavily, spending around a fifth of its GDP on making fuel more affordable to the population.

EGPC has been trying to mitigate the cost of subsidies by buying more refined oil products instead of expensive crude oil feedstock, but is hard pressed to meet its needs.

Egypt has not bought any crude for January and on top of this, its December deliveries will arrive late.

J.P. Morgan sold 2 million barrels to EGPC via its fourth quarter tender but the company has yet to complete the delivery, the trader said.

The B. Elephant tanker has been waiting to discharge in the Red Sea since December 24, as seen on Reuters AIS Live ship tracking, after loading crude in Oman.

"J.P. Morgan's vessel has been waiting for more than two weeks," one seller said. "No letter of credit."

Egypt's state oil company has found it increasingly difficult to procure letters of credit for its transactions and costs are rocketing.

Several times in 2012, tankers carrying vital oil products piled up outside ports when these letters were delayed, which led to gasoline shortages and protests.

In the latest tender, trading company Petraco will deliver 2 million barrels of Iraqi Basra Light in February, several traders said. International trader Arcadia will deliver a 1 million barrel cargo of the same grade in March.

WEAK CURRENCY

Egypt already pays hefty premiums for its fuel deliveries to cover sellers' rising costs for dealing with it. Currency devaluation is amplifying the situation as it makes buying crude oil priced in dollars even more expensive.

The Egyptian pound has lost more than a tenth of its value, since the 2011 revolution and 4.6 percent of its value since end December alone.

Demand for refined oil products such as gasoline and diesel is rising due to population growth. Egypt also needs to compensate for falling gas production, which is used for 55 percent of its electricity production.

Egypt has started to import natural gas and begun reining in exports last year.

Exclusive Analysis think-tank said it believed Egypt was still experiencing gas shortages despite cutting exports to Israel as natural gas output has declined by around 6 percent since the revolution and will likely fall further this year.

A loan from the International Monetary Fund would ease the situation by giving global banks comfort that the country can pay back its oil debts.

But the IMF deal was postponed in December due to civil unrest as it requires Egypt to cut its subsidy spending, heaping hardship on voters.

Egypt pumps around 700,000 barrels per day of crude but has to continue to export it to honour existing contracts to foreign producing companies.

Exclusive Analysis estimates that oil producers working in Egypt are owed $9 billion and that under a deal agreed last year they have been already repaid $3.5 billion while another $3.5 billion tranche is due next August.

(Additional reporting by Shaimaa Fayed in Cairo, editing by William Hardy)

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